June 22^nd

Location: Commerce Club of Atlanta, 191 Peachtree Tower, Atlanta

Time: 7:30-11am. 7:30am – Registration, 8:30am – Discussion Begins

http://www.mobilebreakfastseries.com

The connected devices segment is the fastest growing category of the market and is also the most profitable due to higher margins. Consumer behavior is changing as they consume and interact with content across multiple devices. Broadband access combined with Cloud Computing is creating disruptions of tremendous scale. It is also impacting a rethink in virtually all key verticals – healthcare, housing, travel, entertainment, communication, energy, and others. Mobile broadband and the cloud is also changing the traditional value chains and revenue models. Which segments are yielding the highest ROI? Does computing fundamentally change forever or are connected devices just a part of the PC hub? How does M2M fit into the world of smartphones and tablets? How are businesses and solution providers taking advantage of the growing connected universe? What’s most important for the consumer and what are their expectations on design, pricing, and connectivity? From connected cars to wireless pill bottles, our world is going to change forever. Meet the leaders who are shaping the growing connected devices ecosystem to get insights that will inform your strategy and decide your future revenue streams.

David Christopher, Chief Marketing Officer, AT&T Mobility and Consumer Markets

David Christopher, chief marketing officer of AT&T Mobility & Consumer Markets, leads product strategy, marketing and execution across AT&T’s extensive portfolio of wireless and consumer communications, entertainment products and services. Previously, David served as chief marketing officer for AT&T’s wireless business unit–where he led all marketing functions and drove the company’s strategy to introduce groundbreaking devices and applications. He also served as vice president of product management for AT&T’s wireless unit. David currently serves on the Ad Council’s board of directors and its executive committee.

Louis Gump, VP, CNN Mobile

Louis Gump is vice president of CNN Mobile, responsible for managing CNN’s mobile business globally. Recognized internationally as a seasoned leader in the mobile marketplace, Gump directs CNN’s mobile strategy and development to meet consumer needs and grow overall reach, usage and revenue. Before joining CNN, Gump worked at The Weather Channel, where he led their mobile business. Since 2003, Gump has served on the Board of Directors for the Mobile Marketing Association (MMA), where he is past global chairman as well as past global treasurer. Last year, he received the MMA’s first annual Lifetime Achievement Award for his leadership.

Biju Nair, EVP and Chief Strategy Officer, Synchronoss

Biju Nair has over 18 years’ experience as an entrepreneur and technology industry leader. In this role as CSO, Mr. Nair is responsible for leading the strategic vision of the connected devices and cloud computing for profitable growth of the company’s product portfolio. Prior to joining Synchronoss, Mr. Nair was the Chairman & CEO of Sapience Knowledge Systems, Inc., a venture backed wireless software company (acquired by Synchronoss Technologies in 2011). Previously, Mr. Nair held the position of Senior Vice President & GM of the Connectivity and Security Group at Smith Micro Software (NASDAQ: SMSI) and Corporate Vice President & GM and founder of Mobility Solutions Group at PCTEL, Inc. (NASDAQ:PCTI) which was acquired by Smith Micro in 2008).

Chetan Sharma, President, Chetan Sharma Consulting (moderator)

Chetan Sharma is President of Chetan Sharma Consulting and is one of the leading strategists in the mobile industry. Executives from wireless companies around the world seek his accurate predictions, independent insights, and actionable recommendations. He has served as an advisor to senior executive management of several Fortune 100 companies in the wireless space and is probably the only industry strategist who has advised each of the top 6 global mobile data operators. Chetan is the author or co-author or editor of seven best-selling books on mobile and over 100 articles/papers related to mobile.

http://www.chetansharma.com/ctiawireless2012.htm

CTIA returned to New Orleans after many years and it was great to see the city revitalized and ready to host the wireless show. Overall there were no big announcements, no blockbuster deals, no zingers from speakers that made the headlines. However, it was good to take the pulse of the industry. We met with several prominent industry executives, long-time colleagues, and new entrepreneurs. This note presents the summary of my observations from the show.

Mobile Web and Apps – I had the opportunity to chair the Mobile Web and Apps event and kick off the proceedings with an opening keynote on the State of the Mobile Industry. It was based on our recent global market update that we released last week. In fact, many CEOs and speakers including FCC Chairman Genachowski frequently referenced from the research throughout the show. Wireless Week did a nice cover story based on the talk. There was good discussion and debate about what’s working and what’s not, how developers try to create demand and monetize eyeballs, the issues of security and privacy. Mastercard announced its payment developer APIs program. In fact, the show had the presence of all the major credit card companies. Payments, wallet, and commerce were the big talking point.

Operators vs. OTT – The theme of Mobile World Congress continued at CTIA with the topic dominating in both open forums as well as behind closed doors. While most of the ink has been focused on how OTT players are killing operator revenue streams, there is the untold story of operator collaboration with the OTTs. I wrote a piece on the topic for Synergy magazine “Mobile Operators and OTTs: Building a win-win.” The manner in which operators respond to the OTT opportunity/threat will end up defining their future in the years to come. Some operators like TeliaSonera have reacted by throwing their hands and just charging extra for OTT services while others like Telefonica are launching innovative services. We have looked at this topic in-depth for many years and have some more new research coming out in the next few weeks. Stay tuned.

The challenge for some of the operators is in stark display. While T-Mobile’s Bobsled app garnered (95% users non-TMO customers) 1 million users, Viber announced the 70 million milestone. To be a relevant app, one needs scale. Operators have the advantage of providing better call quality. The call quality on many mobile VoIP services is subpar and enterprise customers (and consumers) will pay a premium for better call quality.

Digital Life and New Revenue Streams – In the US, AT&T dominates the connected devices spaces. Indeed in terms of rolling out new services, it is a step ahead of the competition. AT&T has been showing the Digital Life concepts at Mobile World Congress and at CTIA they announced the trial and actual product availability in 2013. This clearly bodes well for the industry for there are many adjacent industries where operators can play an important role. Other operators should pay close attention. We will be discussing the Connected Devices opportunities in detail at our Atlanta Mobile Breakfast Series Event on June 22^nd with AT&T, Synchronoss, and CNN.

Traffic Growth and Signaling storm – As we have mentioned in our various research papers and research updates, mobile traffic is roughly doubling YOY in most major markets including the US. While data traffic hogs the headlines, signaling is becoming a menace to network management esp. Android which tends to be more inefficient in handling network resources. We will have a more in-depth discussion of these topics in our upcoming Yottabyte research paper.

TMO Acquisition – Last year, AT&T’s proposed acquisition of T-Mobile rocked the industry and kept the regulators busy for better part of 2011. While there were no blockbuster announcements, T-Mobile’s acquisition of MetroPCS along with Nokia and RIM’s long-term prospects remained popular water cooler topics.

Nokia’s revival – Nokia has a lot to prove. Its future is riding on the success of the Lumia series of devices in 2012.  Though it hasn’t exactly set things on fire, the sales are actually doing fine. It is amongst the top selling devices at AT&T and is showing stickiness. However, Nokia is getting crushed in other markets, so the net impact on overall cash position can be significant if it is not able to arrest the downfall in the next 3-4 quarters.

Small Cells – A couple of years ago, small cells and HetNets were just talking point. Now, operators are weaving them into their execution plans as they lay out their 4G networks. Given that mobile data growth is going to stay front and center for the foreseeable future, expect to hear about small cells and HetNets for some time to come.

TMO $4B network deal – Generally, the network deals of this size takes many quarters to iron out. T-Mobile moved fairly quickly to iron out its LTE rollout plans and its vendors.  Not surprisingly, the spoils of the deal went to Ericsson and NSN. In light of the collapse of LightSquared, this deal might provide NSN a lifeline to continue operations for a few more years.

Mobile Wallets and Mobile Payments – While 2012 will not be the year of mobile payments; it certainly is the year of mobile wallets launches and lots of them. Every financial institution worthy of its salt has launched a wallet. We are just going through the early turbulence cycle of this new segment. However, the opening up of the payment APIs from the financial industry is leading to some compelling experiences and use cases.

NFC was absent – The talk of NFC as a payment solution was noticeably muted. We have always said that NFC will have more impact from other solutions than payment.

Verizon – LTE – Competing on LTE, the fight to build the fastest and biggest LTE network is on. Verizon has an early formidable lead but in 2013 rivals will start to catch-up.

Messaging innovation – As I mentioned to the NY Times and discussed it in our annual global mobile update, messaging revenue has started to decline in some countries. Some operators in Europe are in a state of panic. Chaos creates new opportunities. While operators have just given up on fighting the OTT war, others are gearing with new apps and services of their own (TU Me from Telefonica, Bobsled from T-Mobile, On from Orange). Several startups are also helping the operators innovate on the messaging front. SMS was invented in the early nineties but operators didn’t really take messaging to the next level for the last two decades. I met with a number of companies which are doing some interesting work on the messaging side – like ZipWhip, Maxx Wireless, OpenMarket, and others. Some of these companies are still in the stealth mode and expect to make some waves in the coming months. We will be taking this topic head-on in our Mobile Breakfast Series in Seattle (w/ AT&T, Groupon) and London (w/ Telefonica, Orange, Horizons Venture, Rebtel)

Sprint Guardian, and other apps – in line with generating more revenue form other apps, Sprint guardian was launched with Safely and the service is seeing pretty good traction in the early days and might be able to increase the lifetime value of the customer. Other US operators have similar services available on their network as well. Operators will have to invest heavily in VAS ecosystem and services to arrest the declining revenue in other segments.

FCC, Spectrum and Regulations – FCC continued to make its case for more spectrum via incentive auction. With a change of guard expected next year, it will be interesting to see how some of these efforts pan out. FCC should create parallel incentive programs like a $1B prize for tangibly solving the spectrum crisis w/o the need of new spectrum.

Absence of large players – The lack of any major announcements was only rivaled by the absence of the former CTIA heavyweights like Samsung, Alcatel-Lucent, Nokia, Motorola, and Microsoft. Others had fairly low-key presence.

Regulations – Regulations lag the technology industry progress and it is getting to the point that they might end up hindering growth esp. related to communication, privacy and monetization of network assets. It is time to consider bringing all communication, and data privacy rules under the same umbrella so both the telecom and Internet players are guided by the same set of principles.

Your feedback is always welcome.

Chetan Sharma

We will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds, future research reports, and articles. The next US Wireless Data Market update will be released in May 2012. The next Global Wireless Data Market update will be issued in Nov 2012.

Disclaimer: Some of the companies mentioned in this paper are our clients.

June 29^th, 2012

Venue: Wayra, Telefonica. Shropshire House, 11-20 Capper Street, London, WC1E 6JA

Registration: http://www.mobilebreakfastseries.com

Operators and OTT: The way forward

Operator traditional revenue streams are under threat esp. voice and messaging. Access margins will continue to stay under pressure. OTT players are coming in fast and furious and it is not just the big ones like Google but also players like Whatsapp, Voxer, Viber and others. How do operators play in the new landscape – lessen the decline of their traditional revenues while investing in new areas that improve their overall margins and revenues. Do they play the role of an enabler, a utility player, or become the OTT player themselves? In a software-driven world, how do they stay nimble? On the flip side, what are some things that operators can provide to the OTT players that make them successful, take them to the market quickly and maintain a long-term healthy and mutually-beneficial partnership? Operators still generate 70% of the global mobile industry revenues, so they are an important part of the chain but how do they ensure they have an equally relevant share in the profits. The panel will discuss how operators and OTT players think about the challenges and the opportunities, the competition and the coopetition.

Frank Meehan, Horizon Ventures

Frank Meehan is part of the successful Horizons VC team, representing Mr Li Ka-Shing’s private investments. Horizons was an early investor in Skype and holds investments in Facebook, Spotify, Second Market, Waze, and SIRI before it was sold to Apple. Frank also founded INQ Mobile, a Hutchison Whampoa venture which won best handset at MWC 2009, and he is currently on the boards of Trapit, Tripboard, Tout, Summly, Magisto and the TOM Group.

James Finn, Director, Product Design, Telefonica Digital

James Finn currently works at the newly formed Telefonica Digital as the Director of Communication Product Design after a string of internal roles at Telefonica including Chief Fire Stoker @ The Lab, GM of Jajah for Europe and New Business Development at O2 UK. During this time he has launched several products within the Telefonica Footprint such as International Favourites (O2 UK), Global Friends (O2 DE), Social Call, Virtual International Numbers (Telefonica Spain), Calling Card App (O2 UK) and
O2 Connect (Telefonica Digital). Previous to O2 he has worked for a number of startups such as RingRing Media (Acquired by Amobee), Thumbplay (Acquired by ClearChannel), Zingy (Acquired by For-Side) and also spent a time at Ericsson running global sales for the Napster Mobile Product.

Andreas Bernstrröm, CEO, Rebtel

Andreas has overall responsibility for company strategy and direction. Andreas works to ensure that the business runs smoothly now and in the future.  Prior to Rebtel, Andreas has been COO of Taptu and of TradeDoubler, where he was responsible for 600+ employees and more than $500 million in revenues  Prior to that Andreas spent three years at Goldman Sachs.

Patrice Slupowski, VP, Digital Innovation, Orange FT Group.

Patrice Slupowski, VP Digital Innovation, is heading NExT.com, the innovation team of the NAC Division of the Orange FT group. The team runs projects on mobile, PC, TV and tablets like Orange actu revue, TVcheck,  Newsblend with a strong involvement on social networks, recommendation, social TV or personal data agregation. He started in ticketing then development then founded Waptoo in 1999, (mobile services & QA) and sold the company to Lagardere in 2004. Patrice is a graduate in Information Science and Technology from Paris-Dauphine.

Chetan Sharma, President, Chetan Sharma Consulting (moderator)

Chetan Sharma is President of Chetan Sharma Consulting and is one of the leading strategists in the mobile industry. Executives from wireless companies around the world seek his accurate predictions, independent insights, and actionable recommendations. He has served as an advisor to senior executive management of several Fortune 100 companies in the wireless space and is probably the only industry strategist who has advised each of the top 6 global mobile data operators. Chetan is the author or co-author or editor of seven best-selling books on mobile and over 100 articles/papers related to mobile.

Global Mobile Market Update

State of the Global Mobile Union - 2012

1. Total Global Mobile Revenues to hit $1.5 Trillion in 2012, over 2% of Global GDP

– Top 10 operators control 42% of the global data mobile revenues

1. Mobile Services Revenue exceeded $1 Trillion for the first time in 2011

– The number of mobile operators with > $1 Billion in yearly data revenues will touch 50 in 2012

1. Total Global Mobile Data Revenues went past $300 Billion in 2011

– Non-messaging data now owns 53% of the global mobile data revenues

1. Mobile Operator Profits have more than doubled over the last 10 years.

– However, the wealth is not divided evenly. Asia’s share has tripled at the expense of Europe whose profit share has declined by 50%

1. Total Global Subscriptions to exceed 7 Billion in early 2013

– China exceeds 1 Billion, India 950 Million. Subscriber growth is in Asia, Revenue growth is in Asia+North America

1. China and India represent 27% of subscriptions but only 12% of the global service revenues

– US represents only 6% of the subscriptions but 21% of the global service revenues, 26% of the data revenues, and 27% of the global CAPEX

1. Mobile Devices are now exceeding traditional computers in unit sales + revenue

– 70% of the device sales in the US are now smartphones. Device Replacement cycle is shrinking

1. Samsung and Apple now account for 50% of the smartphone unit share and 90% of the profit share

– Difficult environment for other OEMs esp. when ZTE and Huawei are coming strong from the bottom. It will be difficult for pure play device OEMs to survive long-term

1. Tablets (iPads) has created a new computing paradigm that is having a significant impact on commerce, content consumption, and developer investments

– Apple will continue to dominate the segment and iOS will be the leading OS for the segment. Amazon, ZTE, Huawei, to chip away at the sub-$200 tier.

1. Mobile Broadband (4G) is being deployed at a faster rate than previous generations, first time data is leading the charge

– Over 1.5 Billion broadband connections by 2012

1. Global Mobile Apps revenue has completely (and irreversibly) tilted to off-deck

– The decline is directly proportional to the increase in smartphone penetration by region

1. All major markets are consolidating with the top 3 players at 85% of the market

– Regulators will have to be more prudent and proactive about managing competitiveness and growth

1. Mobile data traffic 2x YOY in most markets. Mobile Data will be 95% of the global mobile traffic by 2015

– Many countries are facing spectrum exhaust in the next 2-3 years (in certain markets)

1. Mobile Signaling takes up 2x the resources as Mobile Data Traffic

– Signaling traffic is growing faster than the data traffic on broadband networks

1. Connected device segment is growing at the fastest pace in the western markets

– Operators will have to quickly adapt their strategies to stay relevant in this segment

1. Several multi-billion dollar opportunity segments are emerging

– Mobile Advertising, Mobile Commerce, Mobile Wellness, Mobile Games, and Mobile Cloud Computing to name a few

1. Mobile Ecosystem has become very dynamic and unpredictable

– The 5 Platform Amigos – Apple, Google, Amazon, Microsoft, and Facebook dominate though the first two have the real power

1. Mobile Operator Revenue is under pressure from OTT Players

– OTT Share of the Global Mobile Revenues increased to 4%

1. OTT players forcing operators to up their game

– Operators are partnering, launching their own OTT apps, increasing tariffs to manage the margins

1. Intellectual Property has become a key component of long-term product strategy

– 21% of all patents granted in US are mobile related. Top 20 control 1/3^rd of the overall mobile patent pool

1. Mobile Patent Rankings: US – IBM, Microsoft, Nokia. Europe – Alcatel-Lucent, Nokia, Samsung. Overall – Nokia, Samsung, Alcatel-Lucent

– OEMs – Nokia, Samsung, Sony. Service Providers – AT&T, NTT DoCoMo, Sprint

1. In 3-5 years, with few exceptions, if a company is not doing majority of its digital business on mobile, it is going to be irrelevant

– Majority (by a good margin) of the consumer interactions with brands will be on mobile

1. Mobile has become the single most important digital channel for engaging consumers and it shows

– In the US, mobile revenues were > all Ecommerce And > Music, ISP, Hollywood, and Cable revenues combined

1. We have entered the mobile 3.0 era where “data” is all that matters and it disrupts the value chains

– Data will drive majority of the network growth, Contextual data will drive majority of the VAS growth

1. There will be more changes in the next 10 years than in the previous 100

– The value chains will keep disrupting every 12-18 months by the new players and business models. Several verticals are already getting redefined e.g. retail, health, education, etc.

The Big Picture

The global mobile industry is the most vibrant and fastest growing industry. We expect the total revenue in the industry to touch approximately $1.5 Trillion in 2012 with mobile data representing 28% of the mix. Mobile data services revenue stood at 33%. Global Mobile Data revenues eclipsed $300 Billion for the first time in 2011. It is also the first year in which non-messaging data revenues will make up the majority of the overall global data revenues at 53%.

By the end of 2011, the global subscriptions exceeded 6 Billion. The first 1 billion took over 20 years and this last one took only 15 months. The primary growth drivers are India and China which are cumulatively adding 75M new subs every quarter. China became the first country to eclipse the 1 billion mark in March 2012. India is likely to arrive at the milestone by early 2013.

Smartphones are driving tremendous growth around the globe. Amongst the major markets, US leads with 69% sales. The global figure stands at approximately 32%. Some operators expect 90-95% of their device sales to be smartphones in 2012. In terms of the actual smartphone penetration, we expect the US market to eclipse the 50% mark in 2012.

China leads in the number of subs but US dominates in both total and data revenue. A number of emerging nations are now in top 10 – Brazil, India, Russia, Indonesia, Pakistan, Mexico while once dominant – Korea, UK, Italy, Germany have dropped off or slipped in rankings.

Global Mobile Data Growth

Japan continues to be the leader in mobile data with NTT DoCoMo, KDDI, and Softbank Japan ahead of the pack in terms of mobile data revenue and data as a % of total ARPU. Country average is now at 60%.

Next, Australia and the US have made good inroads in the last two years. In fact, if we look at the overall data revenue, US is much further ahead than any other nation due to the size of the market.

While India has the highest subscriber growth rate in the world right now, the revenue generating opportunity remain down right anemic compared to other major markets with average dropping down to $2.50 in overall ARPU. Even with significant subscriber base, there is going to be a general lack of opportunity in the market for the next couple of years relative to other markets.

Devices – Changing Landscape

Apple has had the tablet space to itself. Thus far the response from the competitors has been tepid esp. on the pricing dimension. Apple has had such a mastery over the supply-chain and months ahead of the competition that by the time they figure out details, Apple already locks up the pricing advantage for the cycle. OEMs try to catch-up on the features but can’t do on the margins. OEMs can grow the pie by bringing products at a better price points that helps attract different demographics to the mix. Microsoft can make good inroads into the space with its Win8 tablet release in 2012 but it will be again in a catch-up mode as the iOS ecosystem will be even more robust by then. The cheaper Android tablets will do well in the market. As expected, tablets will pretty much eliminate the need for netbooks and are starting to eat into the desktop/laptop revenue.

Apple and Samsung are strong on the top. Huawei and ZTE are coming up strong from the bottom. The middle tier players will have a tough time going forward.

It will be difficult for pureplay device OEMs to survive long-term.

Nokia and RIM are under severe market scrutiny as investors and developers leave in droves. Lack of product planning and execution has left their market share in disarray. Nokia’s valuation has been cut into half. Nokia’s release of N9 shows the engineering and creative design depth but a lot is riding on the first generation of Nokia Windows Phones (Lumia). While the market hasn’t shown much appetite for Windows phone thus far, a good family of devices might be able to slow the loss trajectory and position the combined team for the up-for-grabs 3^rd spot in the ecosystem. Given that the computing is shifting to mobile devices, we can expect some of the weaker desktop/laptop players will exit the industry.

Majority of the tablet use is in the WiFi mode because the primary use case is indoors and WiFi gives a better (and cheaper) user experience. However, of the users who use cellular, the churn is low. Once operators start to roll out user-friendly family data plans across multiple devices, we can expect the cellular activation go higher (e.g. Rogers, Vodafone Spain) but will still be dominated by WiFi overall.

Mobile VAS and OTT – The Big Picture

• The traditional operator revenue streams of

– Voice – declining and under threat from VoIP

– Messaging – flattening/declining and under threat from IP messaging

– Access – rising but margins are shrinking fast

– VAS – declining in proportion to the growth of smartphones

• Operators are fighting back with

– Voice – launching their own VoIP apps e.g. Bobsled from T-Mobile, partnering with VoIP players e.g. Skype integration, charging for VoIP apps e.g. TeliaSonera €6/month

– Messaging – launching their own IP messaging apps e.g. Huddle from AT&T, partnering with IP messaging players e.g. Whatsapp partnership

– Access – Tiering

– VAS – launch their own VAS apps and industry vertical apps and services

Managing Mobile Data Traffic and Profits

As a result of the data tsunami, there are two types of opportunities that are being created, one that take advantage of the data being generated in a way that enhances the user experience and provides value and the other in technologies that help manage the traffic data that will continue to grow exponentially.

To be able to stay ahead of the demand, significant planning needs to go in to deal with the bits and bytes that are already exploding. New technical and business solutions will be needed to manage the growth and profit from the services. Relying on only one solution won’t be an effective strategy to manage rising data demand. A holistic approach to managing data traffic is needed and our analysis shows that the cost structure can be reduced by more than half if a suite of solutions are deployed vs. a single dimensional approach and thus bringing the hockey stick curves of data cost more in line with the revenues and thus preserving the margins.

The decision making process within the operator organizations will need to be streamlined as well. Operators should also consider creating a senior post which focuses on both the cost side and the solution side so they can devise and institute a sustainable long-term policy and keep the margins healthy.

Mobile Intellectual Property

• The IP tussles are playing out as expected

• Players with strong IP portfolios will be able to command better negotiating positions, new revenue streams, competitive positioning over the long-term

• On average mobile companies file patents 1.7 times more in the US vs. Europe

• Mobile Patent Leaders in US: IBM, Microsoft, Nokia

• Mobile Patent Leaders in Europe: Alcatel-Lucent, Nokia, Samsung

• Mobile Patent Leaders in Infrastructure: Samsung, Alcatel-Lucent, Ericsson

• Mobile Patent Leaders in Devices: Nokia, Samsung, Sony

• Mobile Patent Leaders in Service Providers: AT&T, NTT DoCoMo, Sprint

• Top 20 control 1/3^rd of the total mobile communications patent pool

Mobile Competitive Dynamics

The Rule of Three is evident in all major markets. While the percentage market share might vary, on an average, the top 3 control 93% of the market in an given nation. It doesn’t matter if the market is defined by “controlled regulation” like in China, Korea, and Japan or if it is “open market” driven in markets such as the US, UK, and India. Eventually, only top 3 operators control the majority of the market. There are niches that others occupy but they are largely irrelevant to the overall structure and functioning of the mobile market.

Markets such as US and India experienced similar competitive environment in their hyper-growth phase. For the US, this phase was in the nineties-mid-2000s while India has been experiencing the similar environment in the last 3-4 years. In both cases, at the start there are 5-6 players with no more than 25% market share but higher than 10% of the mix but gradually the market forces enable consolidation. Over a period of 18 years, US is settling into a “top 3” operator market. India’s brutal price wars are going to trigger the consolidation in the next 12-24 months and will eventually settle into a structure similar to other markets.

The competitive equilibrium point in the mobile industry seems to when the market shares of the top 3 are 46%:29%:18% respectively with the remaining 7% being allocated to the niche operators. To achieve some semblance of equilibrium in the market the top operator shouldn’t have more than 50% of the market share and the number three player shouldn’t have less than 20%. This helps create enough balance in the market to derive maximum value for the consumer.

Mobile operators will face some hard choices in developing and protecting the role they want to play in a given region and the ecosystem at-large. The strategy they choose will have a direct impact on the expected EBITDA margins, investment required over the long-haul, how investors view them, and on the competitive landscape of the country. Given, the fast pace of globalization, new rules and trends might emerge over the course of this decade that further define “communications” and “computing” as we know.

Key Industry Micro-Milestones

1. Apple captures 70% of mobile device profits – defies gravity, obliterates competition
2. Apple mobile appstore downloads exceed 25 Billion, 100 Million on Mac – can you spell domination
3. Samsung ends Nokia’s 14 year reign as the device king – brutal execution
4. Android 300M activations – Juggernaut
5. Paypal does $7B in mobile transaction volume
6. Square does $5B in commerce transaction volume
7. Google > $5B in mobile revenues
8. Microsoft revenues from Android > Windows Mobile
9. Pandora’s 70% usage is on mobile, Twitter’s 60% of the usage is on mobile – heading towards a mobile-dominant world
10. Facebook Instagram Acquisition $1B – Mobile only acquisition to beef up mobile strategy
11. Angry Birds approaches a billion downloads
12. ESPN does 3.1 billion minutes on mobile in 3/12 – Mobile is where the action is
13. Skype traffic over 150 billion minutes – OTT pressure
14. KPN messaging volumes decline 15% YOY – OTT pressure
15. Mobile Security threats grow 7x in last two years, Android threats up 3000% – Mobile IS IT
16. Cisco BYOD ratio – 70% (up 52% in 2011) - BYOD is creating new opportunities for vendors
17. US data traffic over 130 quadrillion bytes/month in 2011 – Data traffic 2X YOY, welcome to the yottabyte era
18. Fandango sells quarter of its ticket on mobile – commerce is happening
19. Expedia does > $1B in mobile commerce – see above
20. Microsoft Nokia Multi-Billion partnership – It takes two to tango
21. Lightsquared fails – Keep your friends close, enemies closer
22. Google Motorola $12.5B – IP becomes key to strategy
23. Nortel Patent acquisition $4.5B – IP becomes key to strategy
24. AT&T/T-Mobile Failure – DOJ/FCC put down the gavel
25. 40% of Kenya’s GDP comes from mobile money – impact of mobile is pervasive
26. Millennial Media IPO at $2B – first public market validation of the mobile advertising space
27. HP gives up on Palm – Competition forces Corporate Schizophrenia

What to expect in 2H 2012

• More Tiering, faster pace of change of plans. More options, family data plans

• Cost reduction is as important as revenue generation. More players will align their value-chains and cost structures

• Facebook IPO is probably going to be the single biggest event in the technology industry in the next few months.

• Radios will start connecting the digital world with the physical world with significant disruption opportunity

• Mobile Payment Networks will remain intact for the near future as the ecosystem largely focuses on building value on top of the existing exchange platforms

• The intersection of Social, Location, Identity, and Gaming is creating new opportunities

• With connectivity becoming pervasive, mobile will fundamentally start to alter the legacy infrastructure – retail, health, education, energy, computing, travel, entertainment

• Significant tablet adoption in the enterprise directly impacting the traditional computer manufacturers

• Both HTML5 and Apps will continue to grow, the relevancy to any given application will depend on the reach and economics requirements. HTML5 is not going to replace Apps.

• Mobile data growth will double again in 2012. Significant opportunities in managed and understanding of mobile data growth

• Regulators will need to evolve to keep up with the trend to keep their nation globally competitive

• More IP scuffles before licensing settlements

• Consolidation of weaker players, more global M&A

• Significant progress in emerging areas like mHealth, mPayments will come from the developing world while the western countries get mired in regulatory and legacy mess

• Several players face challenging times ahead and 2012 will be critical in their turn around sojourn.

Your feedback is always welcome.

Chetan Sharma

We will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds, future research reports, and articles. The next US Wireless Data Market update will be released in May 2012. The next Global Wireless Data Market update will be issued in Apr 2012.

Disclaimer: Some of the companies mentioned in this paper are our clients.

Introduction

In April 2012, in its report on Intellectual Property, the US Patent Office (USPTO) concluded that the entire US economy relies on some form of IP, because virtually every industry either produces or uses it. The foreword of the report said,

“Innovation protected by IP rights is key to creating new jobs and growing exports. Innovation has a positive pervasive effect on the entire economy, and its benefits flow both upstream and downstream to every sector of the U.S. economy. Intellectual property is not just the final product of workers and companies—every job in some way, produces, supplies, consumes or relies on innovation, creativity, and commercial distinctiveness. Protecting our ideas and IP promotes innovative, open, and competitive markets, and helps ensure that the U.S. private sector remains America’s innovation engine.”

Intellectual property has been an integral part of the economic engine of the western world for many decades if not centuries. Over the past two decades, nations and corporations have competed on the creation, funding, execution, and protection of the new ideas. Increasingly, the role of mobile devices, networks, and applications has become an important component of the growth story worldwide.

To say that the mobile devices have become the remote control of our lives would be an understatement. Mobile phones stay attached to us almost 24 hours a day. From waking us up in the morning to keeping us connected and entertained, from speeding up a commerce transaction to being a trusted advisor; mobile is fundamentally changed how we as consumers behave and how societies and cultures evolve over time. As a result, there has been a big influx of investment and innovation over the last decade. This surge of activity has also translated into increased number of patent filings in the two major jurisdictions of US and Europe. Even the developing countries like China and India have seen a significant increase in patent activity in the country. In fact, in terms of filings, China’s share of the global patent grants has increased from 0.8% in 1996 to 15% in 2010 placing it third behind Japan and the US and well ahead of Korea and Europe.

According to the US Patent Office (USPTO), in 2011, the number of applications reached over 535,000 growing by almost 54% from a decade ago. Similarly, the number of patents granted grew 35% to 224,505 by the end of 2011. The numbers of foreign filings are now in the majority for both the applications filed as well as the patents granted. In Europe, similar trends were observed where the EPO (European Patent Office) patent grants increased by 46%.

The number of mobile related patents that were granted by the USPTO and the EPO increased significantly over the course of last decade. The US market saw a 390% increase while the European market saw a 173% increase in mobile related patent grants.

Another interesting fact is that as of Q1 2012, over 21% of the patents granted by the USPTO now are mobile related. This grew from around 2% in 1991 and 5% in 2011. In Europe, roughly 9% of the patents granted are related to mobile.

Chetan Sharma Consulting analyzed almost 7 million patents granted by the USPTO and EPO over the last two decades to understand how mobile has become a key enabler for all technology companies. Furthermore, we looked at patent granted to the top 65 technology companies who are active in the mobile space to understand their relative strengths and weaknesses in the mobile patent landscape. In a first of its kind study, the paper presents and discusses these findings in more detail.

Read the full paper

Your feedback is always welcome.

Chetan Sharma

We will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds, future research reports, and articles. The next US Wireless Data Market update will be released in May 2012. The next Global Wireless Data Market update will be issued in Apr 2012.

Disclaimer: Some of the companies mentioned in this paper are our clients.

Atlanta, June 22^nd 8:30-10:00 am

Commerce Club of Atlanta

Registration

We have a terrific line-up of speakers.

Details below:

The connected devices segment is the fastest growing category of the market and is also the most profitable due to higher margins. Consumer behavior is changing as they consume and interact with content across multiple devices. Connected devices are also impacting a rethink in virtually all key verticals – healthcare, housing, travel, entertainment, communication, energy, and others. It is also disrupting the traditional value chains and revenue models. Which segments are yielding the highest ROI? Does computing fundamentally change forever or are connected devices just a part of the PC hub? How does M2M fit into the world of smartphones and tablets? How are businesses and solution providers taking advantage of the growing connected universe? What’s most important for the consumer and what are their expectations on design, pricing, and connectivity? From connected cars to wireless pill bottles, our world is going to change forever. Meet the leaders who are shaping the growing connected devices ecosystem to get insights that will inform your strategy and decide your future revenue streams.

Fireside Chat

David Christopher, Chief Marketing Officer, AT&T Mobility and Consumer Markets

David Christopher, chief marketing officer of AT&T Mobility & Consumer Markets, leads product strategy, marketing and execution across AT&T’s extensive portfolio of wireless and consumer communications, entertainment products and services. Previously, David served as chief marketing officer for AT&T’s wireless business unit–where he led all marketing functions and drove the company’s strategy to introduce groundbreaking devices and applications. He also served as vice president of product management for AT&T’s wireless unit. David currently serves on the Ad Council’s board of directors and its executive committee.

Panel Discussion

Louis Gump, VP, CNN Mobile

Louis Gump is vice president of CNN Mobile, responsible for managing CNN’s mobile business globally. Recognized internationally as a seasoned leader in the mobile marketplace, Gump directs CNN’s mobile strategy and development to meet consumer needs and grow overall reach, usage and revenue. Before joining CNN, Gump worked at The Weather Channel, where he led their mobile business. Since 2003, Gump has served on the Board of Directors for the Mobile Marketing Association (MMA), where he is past global chairman as well as past global treasurer. Last year, he received the MMA’s first annual Lifetime Achievement Award for his leadership.

Biju Nair, EVP and Chief Strategy Officer, Synchronoss

Biju Nair has over 18 years’ experience as an entrepreneur and technology industry leader. In this role as CSO, Mr. Nair is responsible for leading the strategic vision of the connected devices and cloud computing for profitable growth of the company’s product portfolio. Prior to joining Synchronoss, Mr. Nair was the Chairman & CEO of Sapience Knowledge Systems, Inc., a venture backed wireless software company (acquired by Synchronoss Technologies in 2011). Previously, Mr. Nair held the position of Senior Vice President & GM of the Connectivity and Security Group at Smith Micro Software (NASDAQ: SMSI) and Corporate Vice President & GM and founder of Mobility Solutions Group at PCTEL, Inc. (NASDAQ:PCTI) which was acquired by Smith Micro in 2008).

First of all my thanks to our series partner: OpenMarket and Synchronoss Technologies. Both of them have been great partner to this series and I very much appreciate their support.

Before I get into the details of the panel discussion, a few announcements about the upcoming events. We are planning on hosting MBS events in Atlanta and London this summer and need your assistance in getting the word out. On June 22nd, we will be in Atlanta to host a fireside chat with David Christopher, CMO, AT&T Mobility. The following week, we will be in London and in partnership with O2 UK, we will have some great discussion about the future of the Operator/OTT tussle in the ecosystem.

Our fall summit – Mobile Future Forward is scheduled for Sept 10^th later this year and we are making good progress in setting up the agenda and the topics of discussion, already have some terrific speakers lined up. The theme is to connected universe, monetizing opportunities. We will open up the registration late April, so, keep an eye for that.

We released our yearly update on the US market earlier this month and you might have noted that 40% of the service revenues are now coming from mobile data. In Japan, this figure is getting close to 60%.

If you look at the consumer IT spend – mobile now occupies 50% of that budget and it is increasing. More than 35% households in the US are mobile only. More than 90% of the devices sold last quarter in the US were smartphones. Mobile influences 30-50% of our commerce transactions. In 2009, ESPN noted that their mobile web traffic is exceeding desktop traffic, now most brands have noted that they are already there or within the next 12-18 months mobile will be the majority traffic owner.

The impact of mobile is even more profound in developing countries. The first billion mobile subs took 250 months, the last billion took only 15 months to 6 billion and we will reach 7 billion in 12 months. Mpesa, kenya’s mobile payment now drives 20% of the country’s GDP. In Bhutan, where I spent some last quarter, mobile is the only way to deliver health care to remote areas. Earlier this month, China surpassed a billion subscribers. The opportunities are literally endless. In 2002, I had the good fortune of writing a book with then CTO of NTT DoCoMo, Dr. Yasuhisa Nakamura and he used to say – mobile networks need become omnipresent like air – clearly he didn’t have to pay for roaming data charges. Mark Weiser, from XEROX PARC, one of my heroes, considered the godfather of pervasive computing who first articulated the concept of everywhere, anytime computing back in the eighties and early nineties would have been proud to see the progress we have made.

Mobile is disrupting many industries – two of the most prominent being media and commerce and it is all driven by how consumers perceive the value of mobility, how they interact with content and devices, and how their consumer behavior is shaped over time. To discuss all of that, we had a great panel.

Michael Bayle, Senior Vice President and General Manager, ESPN Mobile. Michael Bayle is Senior Vice President and General Manager of ESPN Mobile. A former Yahoo! and Microsoft executive, Bayle develops and manages all aspects of ESPN’s mobile strategy and execution, including content production, programming and publishing on every ESPN Mobile platform.  He reports to John Kosner, Senior Vice President and General Manager of ESPN Digital and Print Media. Before ESPN, he did stints at Amobee, Yahoo, and Microsoft.

Len Jordan, Managing Director, Madrona. Len joined Madrona in January 2010 and is actively pursuing opportunities to lead new investments.  He currently serves on the boards of Cedexis, MaxPoint Interactive, and Zapd on behalf of Madrona. Len has served on the boards of ten early-stage companies and on behalf of Frazier Technology Ventures currently serves on the boards of Control4, DSIQ, Medio, and Wetpaint. Prior to joining Frazier Technology Ventures as a General Partner in 2004 Len spent 16 years in the software industry.  He most recently served as a senior vice president at RealNetworks.

Megan Tweed, VP, Media, Razorfish. Megan brings bleeding-edge media strategy and planning innovation to clients like Best Buy, Weight Watchers, and Nike. She is a leading agency and industry voice on the benefits of holistic, platform-agnostic planning and measurement across all viable platforms. Before Razorfish, Megan spent time at Carat and UniversalMcCann working on key global accounts.

Vik Pavate, VP of Business Development, Kovio. Vikram Pavate joined Kovio in 2002 with extensive experience in business development, product management and strategic planning. As vice president of business development, he is responsible for Kovio’s corporate strategy, business development, product management and marketing, OEM relationships and strategic joint development and technology alliances.

We touched upon a range of topics, players, issues, and opportunities. Below is the summary of the discussion:

• ESPN is one of the leading mobile properties – 20M mobile uniques, 9B alerts, active across all screens, 4th largest network. 55 different networks.
• Texting growth have declined but still very important for media and commerce.
• NFC is going to be more successful for other things besides payments. 30M NFC phones shipped in 2011, will more than triple in 2012.
• Many of the European operators like O2 investing heavily in NFC and related services.
• The four major players at the center of mobile commerce evolution are: Google, Apple, Amazon, and Paypal. Apple because they massive number of iTunes accounts, Amazon because of their scale and tenacity in doing things at low margins, Paypal is the most dominant mobile payments player in the market today, and Google because, they are the only major player doing something with NFC and learning.
• I might add Square and Starbucks to the mix. Both are doing some interesting stuff that has scale already.
• Financial institutions have wrestled away the 3% transaction share opportunity from the operators. The opportunities for the rest of the ecosystem are in going to be built on top of that payment platform like couponing, advertising, marketing, loyalty programs, etc.
• US retailers are some of the most inefficient in the world and we are in a for a big reset in the next 2-5 years.
• Tablets are a brand new category and eating away from the PC transactions. Expedia already seeing significant commerce traction on tablets.
• Tablets are becoming substitute for catalogue for many brands like Best Buy.
• 50% of the time, consumers have a second device while watching TV. Tablet usage occurs mostly in front of the TV so companies are looking to engage the users on both the platforms at the same time.
• Android devices are out shipping iOS 3:1 but revenue for developers is lacking. iOS is taking away 75% of the developer projects. HTML5 is also starting to have an impact.Android development is expensive due to fragmentation, roughly 2 to 3 times more.
• Windows, Microsoft, and Nokia likely to make a strong comeback. Nokia is weak in the US but very strong in over 40+ countries. Brands want reach, are likely to gravitate towards Nokia for fulfilling some of their goals. Everyone has
• 12% of the media spend is digital. Mobile takes a significant share of attention but only a tiny fraction of the advertising spend. Reasons – maturity, disconnect between impression and commerce, lack of quantifiable metrics. Millennial Media’s blockbuster IPO at almost $2B is however a good indicator for the segment as it became the first company in the space to be vetted by the public markets.
• There are huge opportunities in local advertising.
• Media consumption and commerce are shifting away from desktop to tablets and smartphones. will create new winners and losers.
• Mobile operators role is likely to be that of the enabler vs. the creator of new services.
• Mobile video consumption and advertising are on the upswing. However, the tiered data plans is starting to give a pause to the advertisers. There are ways operators and content owners/advertisers can work together in the interest of the consumer.
• The integration of social with mobile and location is creating new companies and opportunities.

Always, great to moderate a panel with terrific speakers. MBS audience is top-notch as well. Great questions and follow-up. That’s why it is so much fun putting these together. The next MBS event in Seattle will be on June 7th. Hope to see you there.

Until then, do good work and keep in touch.

thanks

Chetan

Bonus: Some ESPN stats that will rattle your mind

ESPN Mobile enjoyed a record-setting month in March, with new highs for mobile web and app usage, as well as video content and alerts.  ESPN mobile web and apps served an average minute audience of 103,000 in March, with an average of 5.1 million daily unique visitors (an increase of 22 percent over March 2011) and 3.1 billion total minutes for the month. ESPN apps in March had 3.6 million average daily uniques (up 125 percent over March 2011) and 1.5 billion minutes (up from 595 million in March 2011).

ESPN Mobile delivered 45 million video starts in March, including 24.6 million from mobile web and 19 million from the ESPN ScoreCenter handset and table apps, both record highs for a single month.  In addition, ESPN delivered 1.5 billion alerts in March, also a record high for any month.

(Source: ESPN)

Frank has been behind some of the initial disruptions in the mobile space such as tight integration of Skype when he was with 3 UK much before than it became fashionable to do so. Similarly, his team launched the first Facebook Phone, the first Twitter Phone and proved that a tight integration of the OTT apps makes all the difference. So, I was delighted for him to pen down a piece on “Buying a Mobile Device in 2014” for he has the insights, the experience and the sincerity to tell it as he sees it. I am excited to make this piece available to our readers.

Frank is now with venture capital firm Horizons Ventures (owned by Hong Kong business magnate Li Ka-shing, whose Hutchison Whampoa is the parent company of INQ), Frank continues to be actively involved in some of the most innovative companies that are disrupting the status quo of telecoms.

Thank You Frank.

Buying a Mobile Device in 2014 by Frank Meehan

From its inception the mobile handset has been an unusual consumer device. It became an extremely coveted product that nonetheless was always way behind the fixed world in terms of its capabilities. Hardware was often very design driven, with vendors playing around with cameras and form factor more than the technical capabilities of the handsets. But it was incredibly convenient and desired by all, so the mobile industry coasted along on a relatively closed model that worked for all concerned.

Of course, in 2007 Steve Jobs looked as this cosy situation between handset manufacturers and operators, which in effect did not deliver anything of earth shattering innovation to the customer, decided this status quo was ripe for disruption, and then proceeded to rip up and reshape the industry in a very effective and efficient manner.

So now in 2011, the landscape has altered dramatically, in a way that has left the big vendors of the 2000’s fighting to stay relevant. Over the next couple of years, the hardware "arms race" will accelerate to the point where only a few can really stand the pace at the top - with Apple and Samsung leading the way and everyone else back in second place. Businesses that were set up around specific mobile models and software suddenly have found that mobile really is becoming blended into fixed and that the traditional ways of differentiation are rapidly disappearing.

Mobile devices really are becoming just like "PC’s" in that the customer is becoming more savvy about hardware specifications, and less "brand loyal" with the exception of Apple. In fact looking forward 2-3 years, there will be little to differentiate mobile versus the traditional definition of fixed.

Everything essentially becomes a screen. Whether it is a desktop, laptop, tablet or handset.

These screens will be incredibly high powered. In 2012 we already have quad core chipsets coming. That is an incredible amount of computing power, yet the user interface on mobiles does not take advantage of it. Software is behind hardware now, except for 3D games, there is little on a handset that takes advantage of the processors.

So the focus now will be developing software to match this rapid processor jump. Already with Windows 8 we’re starting to see the first natural user interfaces that were first envisioned back in the film Minority. This is the start of the next big jump in a user experience, where the consumer naturally just shifts content around and will only get faster, more visually striking and more useful.

When asked to think about any future vision or experience, I try to articulate the answer in terms of how a customer will actually be driven to purchase that product at the point in time, which in this article is set at 2014.

The mobile device buying experience for a customer in 2014

A customer considering buying a mobile device, in 2014 will have an incredibly wide range of choices about where to buy and what to buy, with four main areas of choice:

1. The ecosystem. In 2014 there will still be 3 major OS ecosystems to buy into, which help connect all their devices, from home to car to work. Those will be from Google, Apple and Microsoft. Everything else will have too small a market share to be significant.

The ecosystems are not mutually exclusive, since the key companies have long developed cross platform versions of their products, and HTML5 has largely replaced vendor controlled application stores. But each customer will have the majority of their devices on a certain ecosystem. The mobile device market will be quite similar to the PC market today. Apple will command a premium; everyone else will fight over tight margins, which are likely supplemented with software and advertising revenues by the smart vendors. The customer will be quite aware of where their media is stored, which system delivers it best and how easy it is to use. In that respect, Apple will still be the clear leader.

2. The hardware. The customer buys primarily on specifications, just like they do with a PC, laptop or TV in 2011. By 2014 the average customer is very tech savvy at the tech inside, such as screen capabilities, processors, memory, etc. They have little loyalty, but if their current vendor has a new device which is great on price, spec and design than they will naturally like to stay with that vendor. However, if someone else has better technology at the right price, then they will switch.

Buying mobile devices in 2014 is like the PC or TV buying experience of today. By 2014, the high margins enjoyed by non Apple handset vendors will disappear as the tech spec wars drive customers to buy only the latest and best specifications, which commoditizes the devices . Since everyone else will be running either Android/Chrome or Windows, the device itself is just a spec, with some nice design being the main differentiation between devices of similar specification. Of course, there will always be one vendor who brings out a technical marvel, be that wraparound screens, flexible screen etc, but within 6-12 months everyone has caught up and it’s back on spec again. Just like the TV business.

Devices have become commoditized, and the inevitable point in the industry where a device is just more or less a screen has been reached. Whether it is TV, Laptop, tablet or handset, everything is about the screen, and due to their superior technology in this area, the leader in 2014 is likely Samsung. Naturally matched by Apple with it’s superior user experience, design and hardware.

Also, Apple and Samsung are the only two companies in 2014 who can bring out truly ground breaking technology fast enough, sexy enough and most importantly to the widest distribution. Together they control around 40-50% of all devices, with low cost vendors taking up most of the rest - similar to the TV market today. There are some expensive niche players, but the volume is via Samsung and Apple. However, disruptors are at play, more of that later.

Essentially handset vendors have found themselves having to be extremely efficient distribution machines with high hardware R&D costs. Devices last no more than 6 months before being replaced in retail, and customers differentiate very strongly between hardware and software brands.

3. Retail.

The customer will be buying far more mobile devices online than they do today, driving overall cost of ownership down. As devices have become more commoditized, people buy devices online just like they buy laptops, TVs and tablets.  Although they will go to a major outlet to see, use and browse the handset, their buying choices are much greater.

The new world has also thrown up big new mobile brands, which are built around a strong online presence, wrapping up software and hardware in low cost devices sold directly to consumers. These brands have a completely new connection with the consumer, who sees them as delivering considerable value, plus some will be able to stand out with great software as well. By 2014, the web has really revolutionized mobile retail as well.

4. Subscriptions and payments

By 2014, consolidation around operators in cable, fixed and mobile, means that the biggest just got bigger and are now dominating home, mobile and office access. Which has led to devices being less subsidized as operators look to bring cash flows forward. Also the key ecosystem players are spending considerable amounts to subsidize subscriptions and devices which have also improved operator cash flows. Operators in most countries have also decided that their considerable retail estates were not an efficient use of cash and have consolidated their shops, concentrating instead on internet sales, especially as devices have become much easier to sell online.

Operators have diverted cash into developing applications, services and online payment mechanisms which deliver greater margins combined with access subscriptions than previous times.

This means that consumers likely get a free hub from their operator which delivers access, services and media to multiple devices. But the devices themselves are mostly paid for by the subscriber, even handsets. Consumers also have multiple devices leading to less desire from operators to subsidize, instead their cash has been diverted to subsidizing the big media players such as Spotify, Netflix, YouTube, Xbox Live and Hulu to entice subscribers, which will make the device prices far more transparent to consumers.

In short, handheld devices may be technological marvels, but by 2014, they will also have become just like any other consumer device and the "mobile industry" has become part of a much broader device industry.

I wanted to provide some more details behind those numbers. 90% of the tablets using WiFi only doesn’t mean that 90% of the tablets SOLD are WiFi only. What we were saying was that by the end of 2011, roughly 90% of the tablets (which are a combination of WiFi only tablets like the Kindle Fire or the Samsung Galaxy or the Apple iPad and WiFi+Cellular tablets like the Samsung Galaxy, the Motorola Xoom, and the Apple iPad) were using WiFi only to connect to the network. Some of these tablets are also using MiFi and tethering capabilities of their devices to connect to the cellular network as well.

So, how does the overall tablet landscape in the US breakdown by connectivity type. As indicated in the figure below over 62% of the tablets in the US are WiFi only. Another 25% are WiFi+Cellular but are not activated by the consumer so the total WiFi tablets in use as of Q4 2011 were roughly 87% of the mix. These included tablets such as Kindle Fire and Nook Tablet along with traditional tablets such as the iPad and Samsung Galaxy. A small percentage of these users connect these users to the cellular network via MiFi and tethering options as well.

This also means that roughly one third of the tablets with cellular connections were activated as of Q4 2011. Since customers go in-and-out of the prepaid tablet contracts, the actual number of tablets that have had a cellular connection at some point in time is obviously larger. In general, the churn is low as consumers who get hooked onto the cellular connectivity outside the WiFi zone don’t want to give it up.

Another important point is that this distribution is not uniform across all operators either in the US or abroad. Overseas, some operators have launched family data plans where users can attach multiple devices to a single data plan just like they do for voice plans. Canadian operator Rogers launched family data plans wherein family can share 1-2 GB/mo across multiple devices. Orange Austria, France, and Spain offer two devices per data plan that includes unlimited WiFi and 2GB shared data across both devices. Vodafone Ireland offers shared mobile broadband for business users with 5GB limit shared across unlimited users. The cost for this plan is $10/connection/month with additional 5GB for $14.

Also, operators who offer more flexibility in their data plans by providing daily or weekly passes (like AT&T and Verizon provide for laptops and netbooks ) or even hourly data plans (more prevalent in developing countries) will see more traction with the tablet consumers.

Finally, another barrier to greater cellular tablet adoption is the cost difference between WiFi only and WiFi+Cellular tablets. Clearly, iPad rules the tablet market right now and the price difference between the two classes of devices is $129, enough to dissuade a segment of the tablet loving population. As the price of HSPA+ and LTE modules come down further, the difference in price between the two classes of devices is likely to go away.

US remains the leading nation in terms of tablet use and as the pricing plans mature across all the operators and the OEM costs go down, we will see majority of the consumers using cellular connectivity in the market.

Michael Bayle, SVP and GM, ESPN Mobile

Megan Tweed, VP – Media, Razorfish

Len Jordan, Managing Director, Madrona Venture Group

Vik Pavate, VP, Kovio

Chetan Sharma, President, Chetan Sharma Consulting (moderator)

These guys are at the forefront of change in our ecosystem, their insights will be quite valuable.

We are expecting a full house, so please register soon. We will close registration this weekend.

Many thanks to OpenMarket for being our partner for the event.

Hope to see you there.

http://www.chetansharma.com/USmarketupdate2011.htm

Summary

The US market generated $67 billion in mobile data revenues in 2011 accounting for 39% of the overall revenues for the country. The mobile data market grew 4% Q/Q and 19% Y/Y to reach $18.6B for the quarter. For the year 2012, we are forecasting that mobile data revenues in the US market will reach $80 billion.

The US market accounts for 5% of the subscriber base but 17% of the global service revenues and 21% of the global mobile data revenues. It also accounts for 40% for the global smartphone sales.

If the Martians landed on earth in early 2012, they will conclude the following: there are only 3 things certain on earth – death, taxes, and the direction of Apple’s stock price. Apple had a monster quarter with record sales of iPhone and iPad not only in the US but also around the world. Apple sold over 93M smartphones outpacing its nearest rival Samsung by a good distance. Its share of the profits is more than rest of the OEMs combined. Its stratospheric rise is legendary by any measure. Today Apple eclipsed the combined market cap of Microsoft, Google, and Amazon. Think about that for a minute. In 6-12 months, you could probably add Facebook to the equation as well. The question on rivals’ mind is when will Apple stop defying gravity. Until then, better be a fast follower.

Smartphones continued to be sold at a brisk pace accounting for 65% of the devices sold in Q4 2011. US Operators are averaging 80% of their postpaid sales as smartphones with Android dominating though iPhone leads in mindshare. The Obama administration formally placed featurephones on the endangered species list but either chamber is unlikely to pass any resolution to save it.

Nokia launched its Lumia series of devices with good acclaim however it remains to be seen if it will be able to win back the customers in big numbers in 2012.

The Post-PC Era

Ever since the iPad came into being, the chants of the post-pc mantra are getting louder. But what is it? Is it just the untethered devices? Isn’t iPad a person computer too? What about the smartphones? They have more horse power than my first few PCs combined. Is the personal computing morphing into something else or is there a clear delineation between the Mesozoic era and the new tomorrow? While we in the industry get obsessed by these minutiae, what do the real consumers think about it? Clearly, tablets are selling better than the PCs (as our previous research has shown) both in units as well as the revenue. But so did the laptops compared to the desktops.

So, does the miniaturization of a screen and improving computing power represents a big shift or is this just an evolution of personal computing. Consumers rarely think about what computing era they are in. Between the time they wake and go back to bed at night, there are a series of tasks they have to accomplish. The technology is their companion to accomplish them, from keeping calendars to creating corporate presentations to sending messages to watching TV for entertainment to socializing with family and friends.. the list seems endless. Often times, the time is too short. Technology finds a way to give the time back to us by reducing the distance between the tasks as well as compressing the duration.

As I have said before, nothing collapses time and distance like mobile. Tablets, particularly, iPad and the smartphones, if seen through the eyes of the year 2000 make us superhumans providing us capability to process several tasks in parallel. We can even direct the computing device to figure things out while we sleep. Computing is morphing into a true companion, a wily butler who just knows what’s needed next. Being untethered to a desk makes us more productive. Taking the computing evolution further – what if we can create a desktop environment wherever we are instead going to a desk. For my work setup, I have 4 or 5 screens running at the same time and it does help. It is hard to see tablets in their current incarnation competing with that task environment. However, it does allow us to collapse the desktop and take it with us.

Tablet+Network+Cloud is an enormously powerful value proposition. It should be noted that apps and services on the mobile platform are defining the desktop environment now.

For the enterprise worker, many of the day-to-day tasks don’t really need the real-estate of 3 big monitors; we can easily accomplish a lot with a smartphone or better yet the tablet. As such, we are seeing corporations de-investing in desktops and laptops and moving this investment into tablets, smartphones, apps and make their work force more nimble and competitive. This also means, apps that used to be written for Windows will be predominantly written on iOS and Android, at least for the near-term. Microsoft has a strong offering in 8 and the fact that it will work across the three screens gives it some chips to play in the new world. Whether we call it a post-pc era or the computing continuum doesn’t seem that relevant. What matters most is the set of tools that help us accomplish the tasks at hand on a daily basis. The shift is tectonic in nature, and it is creating winners and losers at an incredibly fast pace. However, my sense is that we are finally entering into the ambient computing era where the computing capability is all around us, something that Mark Weiser of Xerox PARC envisioned more than 20 years ago and something we imagined growing up with the original Star Trek.

We will be dealing with multiple connected devices which share a common identity, cloud, media, security layer, and most importantly the apps and services. The traditional PC won’t disappear but our reliance on one single machine for creation or consumption will continue to dissipate. We will have scores of radios around us, multiple objects that can think and communicate from cereal boxes to security alarms; from windows to fabric shirts; from tables to automobiles; it feels more like the connected era - where objects with brains and energy are connected to create an unprecedented universe of intelligence and productivity. This will indeed impact purchasing behavior and the commerce flow. The social and computing interactions are more intimate, have more purpose, and are available everywhere. The work-life boundaries only exist in one’s mind. A business can be started with an app on a smartphone, anywhere serving to any consumer on the planet. The impact on productivity, the shrinking human capital needed for a set of tasks, corporate and nation’s competitiveness is significant.

In many developing nations, the PC era never arrived. They jumped right into the mobile computing era. They have always lived in the post-PC era. The implications are profound.

More than anything else, the old guard is having a tough time adjusting to the new computing paradigm. HP, Dell, and others have tried but failed thus far to either launch a decent tablet or a smartphone. While Apple invented the new computing paradigm only Samsung has been able to stand up as a worthy rival. The success of a vertically integrated success strategy has seduced Microsoft and Google to the doorstep of a vertical strategy. Will they cross the chasm remains to be seen. Much depends on how Nokia performs for Microsoft and how long can Android juggernaut keeps growing for Google. Then, of course, there are Amazon and Facebook who are attacking the market from a services angle. With a strong entry of the likes of Huawei and ZTE, players caught in the middle are struggling for a viable long-term path to success.

The engagement model with the computing resources is undergoing significant evolution as well. Keyboard and mouse seem relics of a bygone era. We are falling in love with gesture computing combined with a myriad of input and intelligence techniques. Data processing at the speed of light is the new competitive advantage at all computing layers.

In every shift, winners and losers are created. The ones who fail to recognize and adapt become the relic of the historical past duly replaced by the new creators and implementers. If we look at the US household IT spend, over 50% of that spend now goes to mobile. The life time value will increase for players who can tie experiences together across multiple screens in a seamless fashion. This will enable them to not only capture the device revenue but also the commerce and services revenue built on top of it.

The battle for the consumer wallet is being fought on Apple’s turf; it is the one driving the industry narrative and the agenda for its competitors and the ecosystem at large. Am pretty sure we will stop using computer to define computing. Interesting times indeed.

Competition

In any other year, the AT&T and T-Mobile merger would have likely gone through. The interconnection of policy, politics, and private enterprise was on vivid display last year. The failure of the merger forced Deutsche Telekom to resort to the only second viable option - to take the plunge and invest in the US market. Whether 4 competitors can survive 3 years from now is still questionable. Given that DOJ and FCC have set the precedent, the only way a major M&A can take place in the US service provider segment in the near term is if one of the tier 2 operators falters Q/Q. We still believe in our thesis as outlined in our research paper “Competition and the Evolution of Mobile Markets” last year that the US market can’t support 4 large operators and we are likely to see further M&A activity in the sector before too long.

Mobile Data Growth – The Gigabyte Generation

Mobile data traffic growth continued unabated doubling again for the 8th straight year. We expect the mobile consumption to double again in 2012. Data now constitutes over 85% of the mobile traffic in the US. Approximately 30% of the smartphone users average more than 1GB/mo. As new devices and new network technology roll-out keep pace in 2012, the data traffic will grow at the expected pace. The signaling traffic is expected to grow in even faster. Stay tuned for our research paper in the Yottabyte series of papers on the topic later this year.

Mobile Patents Landscape

2011 was the most active year for mobile patents in terms of disputes. All the major players were active in filing and protecting their turf for the future battles. IBM topped the industry in the most number of mobile patents granted in 2011 in the US followed by Samsung and Microsoft. The rest of the top 10 in order included Sony, Qualcomm, LG, Ericsson, Panasonic, Broadcom and RIM. Of the major players, Nokia occupied #12, Intel #13, Apple #16, Motorola #21, and Google #23 spot in the top 50 ranking. Amongst the mobile operators, Sprint was the leader with 323 patents granted in 2011. We have more research coming out later in the year that shows the relative patent strength of the various mobile players.

Connected Universe, Monetizing Opportunities

While 2011 was the year of figuring what the opportunities are in the new connected era, 2012 is starting to focus on how to monetize those opportunities. That will be the theme of our Mobile Future Forward Thought-leadership summit in Sept. More details to come. Almost all the vertical industries are benefiting from the connected devices and ubiquity of broadband networks – security, health, retail, utility, transportation, entertainment, and others. We will take a deep dive into the issues, the best case studies, the opportunities, and the players.

What to expect in the coming months?

All this has setup an absolutely fascinating 2012 in the communication/computing industry. Convergence is everywhere and is leading to a fundamental reset of the value chains and ecosystems.

As usual, we will be keeping a very close eye on the micro- and macro-trends and reporting on the market on a regular basis in various private and public settings.

Against this backdrop, the analysis of the Q4 2011 and full year 2011 US wireless data market is:

Service Revenues

• The US Wireless data service revenues grew 5% Q/Q and 19% Y/Y to $17.6B in Q4 2011. The mobile data services revenues for the US market hit our initial estimate of $67B for the year 2011, a growth of 22% over 2010. For the year 2012, we are forecasting that mobile data revenues in the US market will reach $80 billion.
• Verizon and AT&T dominated the year accounting for 68% of the mobile data services revenue and had 66% of the subscription base.
• Verizon maintained its #1 ranking in 2011 ahead of NTT DoCoMo with a whopping $23.7B mobile data year. AT&T maintained its #3 position with $22B in data revenues. Sprint and T-Mobile maintained their #5 and #9 rank in the top 10 mobile data operators list for 2011.

ARPU

• The Overall ARPU declined by $0.43. Average voice ARPU declined by $0.96 while the average data ARPU grew by $0.52 or 3% Q/Q.
• The average industry percentage contribution of data to overall ARPU was 38.9% in Q4 2011 and is likely to exceed 40% by Q1 2012. Now, all the top three US operators are above the 40% mark with Verizon leading the trio. (For reference, all three major Japanese operators are now above the 55% mark).
• We expect data revenues to exceed voice revenues in the US market in early 2013.

Subscribers

• At the end of 2011, the mobile penetration in the US stood at approximately 110%.
• Helped by the growth in connected devices, the overall net-adds increased by 5.1M with AT&T accounting for almost 50% of the growth. For the year, AT&T was a clear leader in net-adds primarily driven by the success in the emerging devices segment. Despite losing the iPhone exclusivity, the operator was able to maintain solid growth throughout the year.
• Verizon led in postpaid net-adds.
• For the ninth straight quarter, AT&T reported more net-adds from connected devices than postpaid subs. AT&T now accounts for 43% of connected devices in the US (w/ cellular subscription of some sort).
• Overall, AT&T has 46% of the connected device share of the market. The connected device segment growth slowed down to 4% Q/Q but is still up 27% Y/Y.
• Sprint added more than a million subscriptions for the fifth straight quarter while T-Mobile subscriber woes continued as it lost 569K subscriptions. T-Mobile’s postpaid growth has been especially troubling as it doubled its postpaid net-losses to 2.2M for the calendar year.
• Rebounding from the failed AT&T merger, Deutsche Telekom announced its investment in the US arm. T-Mobile will launch its LTE in 2013 in its attempt to catch-up with its stronger rivals.

Applications and Services

• After unseating Philippines as the king of TXT messaging earlier in the year, US TXT messaging continues to grow albeit at a slower pace. US consumers are now sending messages at the rate of 680 messages/sub/mo. Most operators are seeing decline in messaging growth due to IP messaging. As expected, this transition will continue around the world at different rates. In the US, while the change is underway, we don’t expect any dramatic declines like in Philippines or the Netherlands in the near-term.
• The market is finally starting to see activity in the mobile commerce and payment services as well as in various industry verticals like healthcare, retail, and education.
• Q4 2011 again saw tremendous activity in the mobile commerce and payments space with lot of announcements from the operators, Internet players, and startups as well as the retailers and the ecommerce players. All are vying for a piece of the mobile wallet. Much more to come in the next 12 months.

Handsets

• Smartphones continued to be sold at a brisk pace accounting for 65% of the devices sold in Q4 2011. Operators are averaging 80% of their postpaid sales as smartphones with Android dominating though iPhone leads in revenue and mindshare.
• Nokia’s position in the market improved slightly with the launch of WP7 devices. While it is fairly clear that Windows will acquire the #3 spot behind iOS and Android, the journey to a substantial and competitive market share is still ways off.
• Apple had a monster Q4 with 37M iPhones sold and recaptured its global smartphone leader title from Samsung though the Korean rival bested it in the US market albeit barely.
• 40% of all smartphones sold globally in Q4 were sold in the US making it the most attractive market for the OEMs.
• Smartphones now account for over 80% revenue of all phones sold in the US.
• 90% of the tablets use WiFi only (some have inactivated cellular chipset) meaning the operator channel is not a necessary distribution channel. Operators who start to bundle multiple devices by single data plans and data buckets are going to see a better yield in this category. We expect family data plans to be introduced in the US market soon.
• Verizon added another 2.2M LTE subscribers making it the leading LTE operator in the world. AT&T’s LTE plans are gathering steam and Sprint plans to offer LTE in 2012.
• There is always a beauty contest amongst operators as to who sold more iPhones. AT&T again bested its rivals by selling a whopping 7.6M units in the quarter more than Verizon and Sprint combined. T-Mobile is still waiting for its date with Apple.

Mobile Data Growth

• Mobile data traffic growth continued unabated doubling again for the 8th straight year. We expect the mobile consumption to double again in 2012. Data now constitutes over 85% of the mobile traffic in the US.
• While the spectrum debate rages on, in addition to the network and backhaul upgrades, policy management and data offload have emerged as top two solutions that operators deploying around the world. Signaling management solutions like Diameter routing are also getting good traction. However, a long-term video solution is still elusive. As we have been saying in our Yottabyte series of research papers, a comprehensive solution strategy is needed to effectively manage margins/bit.
• We will have the 3^rd edition of our “Managing Growth and Profits in the Yottabyte Era” research out early next year.

Global Update

• Race to a billion – China became the first nation (ok, there aren’t that many who are going to touch the billion mark) to go past a billion subscriptions. See our detailed analysis of the Chinese and Indian mobile market.
• For more details, please see our Global Mobile Wireless Market Update released in July 2011. The next global update will be released in April 2012.

Your feedback is always welcome.

Chetan Sharma

We will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds, future research reports, and articles. The next US Wireless Data Market update will be released in May 2012. The next Global Wireless Data Market update will be issued in Apr 2012.

Disclaimer: Some of the companies mentioned in this paper are our clients.

The mobile industry had its biggest industry show last week in Barcelona. Going by the attendee numbers, the global economy seems to have rebounded though riots on the streets indicated tough time for Spain ahead. While there weren’t any blockbuster announcements, there was plenty to chew on. LTE, Connected Devices, Mobile Commerce, Privacy, WiFi offload, small cells, platform wars, mobile money, RCS, Connected Home, NFC, Cloud, and HTML5 had their share of debates and discussions. This note summarizes my observations from the show.

China passes the 1B mark – As we noted in our research piece last month “A Tale of Two Mobile Markets – China and India,” China crossed the 1B subscription mark this past weekend (Economist did a piece based on our research as well). In the last ten years, China has become the 2^nd largest economy in the world behind the US while India which crossed the 900M mark last month is edging past Japan to be the #3. Given that mobile will have a central role in the ICT evolution of global markets and economies, what happens in the mobile markets of China and India will influence rest of the world.

Convergence of three screens – One of the fascinating trend is the convergence of the desktop, tablets, and smartphones at the OS/Apps layer with Apple, Microsoft, and Google being the three major pillars. Each has its strength in a given segment though Apple has the most mindshare across all three. Microsoft dominates the desktop world with over 90% share, Apple dominates the tablet world with over 60% share and runs a close second to Google on the smartphone segment. As I mentioned to the New York Times, this has significant implications on commerce, distribution, and life time value of the customer.

Operators vs. OTT – Round 2 - Mobile World Congress Keynotes started with two of the most prominent mobile operators proclaiming that the industry has significant challenges in the form of OTT providers commoditizing their revenue streams without any significant investment of their own into the network. Both Franco Bernabe, Chairman and CEO of Telecom Italia and Li Yue, President of China Mobile painted a gloomy picture and how operators need to focus on fundamentals if they were to survive the ever growing pressure on the margins. Some like KPN and SMART are seeing deterioration of their business fundamentals. However, there are some good case studies of success as discussed in my GigaOM column. I also discussed the subject in my paper released last month “Mobile Internet 3.0: How Operators can become service innovators and drive profitability” A number of operators announced their support for Joyn – the face of RCS services. The Operator/OTT story will be one of the most fascinating ones to watch in the coming months.

Mobile payments and commerce – There is significant activity in the mobile payments space but activity shouldn’t be confused for progress. Number of announcements with actual product offerings or roadmap is limited. There are some interesting case studies that are emerging however, like the one in Czech Republic where operators are collaborating with the banks to lower the commission and share the proceeds. That’s the primary way the operator model is going to work. Financial guys have protected their turf very well. And now retailers are forming their union. There has been too much focus on NFC payments rather than NFC as a platform for doing other things besides payments. As I said to the New York Times, “It will take a long time.”

Mobile Cloud – The discussion of Mobile Cloud has moved to Smart Cloud. From devices to the network to the apps, all elements of the chain are looking for the cloud to drive efficiencies in cost and performance.

Mobile Security – Mobile Security has emerged as one of the key opportunity areas for the ecosystem. Given that mobile devices are multiplying like gremlins, it is time to reign in the security. Both consumers and enterprise customers will benefit from a safety net that can protect customers from loss of data, viruses, targeted attacks, and malware. You can expect a number of offerings in this space over the course of this year.

Intel is serious about Mobile – Paul Otellini, CEO of Intel said at the launch event that they are introducing mobile technology at twice the pace of Moore’s law and is a clear statement that Intel is serious about mobile. Intel announced Orange, Lava, ZTE, and Visa as their new partners (in addition to previously announced Motorola and Lenovo) for their mobile chipset platform (smartphones and tablets). While the industry watchers are waiting for one of the big shoe to drop (the likes of Samsung, HTC, Nokia), Intel is making steady progress and the devices are blazing fast especially for 1080p video. Partners are all looking for mass-market devices (read sub-$50 after subsidy) within the next 2-4 months.

Managing Signaling traffic – While the data capacity issues get discussed a lot, signaling traffic and the problems they cause don’t get the same treatment. However, it is very clear that management of signaling traffic will remain quite important. Many of the applications are atrocious when it comes to signaling efficiency for e.g. I saw one of the mapping apps at Procera’s booth which requested connection for every single tile on the map, every time the map was rendered, so one map view could generate over a dozen signaling requests. So far, a lot of attention has been on policy management of data traffic, we better start paying attention to policy management of signaling traffic.

LTE/WiFi – Infrastructure providers and operators are looking to tighten the bond between LTE and WiFi such that the traffic can be policy managed at a granular level by application type so that based on the real-time traffic conditions, traffic can be optimized and routed accordingly.  Alcatel-Lucent with its LightRadio technology and SK Telecom were some of the players demoing the concept.

Traffic Onloading – Most vendors and operators talk about traffic offloading, but Wim Sweldens, President of Alcatel-Lucent Wireless division had much to say about traffic onloading. Even at the show, WiFi offload was being discussed along with LTE in the same sentence. With traffic, operators are also offloading the customer, he said – exposing the customer to potential security problems and perhaps loss of revenue opportunities during that session. With Light Radio WiFi®, operators will be able to more intelligently onboard the customer to their network and provide the same level of service and security as they do with their cellular network. Wim suggested that this is a good marriage between the radio and the IP world to give the best to customer while preserving the value for the operators. My discussion with Wim in this GigaOM column has more details. I will have more research coming out on the subject later in the year.

GAMAF moves - While Eric Schmidt will argue Microsoft isn’t in the mix; the platform world in mobile revolves around the furious five – GAMAF. Each has their strengths and weaknesses. Amongst the five, Google had the biggest presence at the show while Apple and Amazon were just there to scout talent, deals, and competition. Amazon and Facebook lack an OS to go with their ambitions and are pinning their hopes on HTML5. Amazon has thus far used Google’s efforts to its advantage and done a better job in some areas. MWC12 was coming out party for Facebook Mobile. Microsoft is making steady progress with 8 and hoping that it will prove to be its lucky number.

Empire strikes back – Microsoft and Nokia have been making steady progress in their quest to regain market share that stands decimated by previous strategic errors. While it is going to take unforeseen amount of time to make up for the lost market value, Nokia’s product line looks good, operators seem to provide a helping hand in creating the third viable ecosystem. Microsoft has been scrambling to get Windows 8 ready for the market so it can launch tablets and tie the three screens together. Things finally are coming together. Though a number of things can still go wrong, the two work horses are moving in the right direction. However, the biggest question still is whether consumers will give them a chance or not?

Facebook – HTML5 R Us – Facebook has been a bit tentative in mobile over the last few years but is making a concerted effort in building its strategy around HTML5. It is also doing this by rallying partners from across the ecosystem. With its massive reach, it will be a significant player in mobile, commerce, and advertising.

Connected Home – One of my favorite MWC things to do is to visit the Connected Home to see how close we are getting to the reality of connected home. AT&T and other partners showcased some of their latest technologies in home automation and the remote monitoring and home automation platform is almost ready for prime time. AT&T expects the Digital Life platform to be available later this year.

Devices – There were a number of devices launched at the show. HTC got going first with HTC One. The most significant part of the announcement was the distribution deal with 140+ operators. They are going to have a good Q2. Sony, LG, ZTE, Huawei also announced their lineup. Nokia’s pureview stood out for me with its incredible new camera technology (even though it was built on Symbian). Apple, you can finish your Lytro acquisition now. Samsung feverishly pushed its Galaxy Note.

The Untouchables – With Apple launching its LTE iPad on March 7^th, the non-Apple tablet market is pretty much frozen. While there were some new tablets launched at the show, an opportunity to change the game likely won’t occur until Microsoft comes out with 8 or Google springs in a surprise. Amazon will continue to sell Kindle Fire but it is hardly making a dent to Apple’s trajectory. Apple is so far ahead of its competitors in the top tier of this key emerging segment that you might as well classify the company as the untouchables.

HyperLocal on a Global Scale - Hyperlocal targeting has been around for some time, one can do polygon targeting meaning draw a polygon of the area where the advertiser wants to target the users. The advantage is that the ads are specific and more context-aware and hence the rate of engagement is higher. Advertisers get better leads and are quite useful for time sensitive campaigns. However, the capability is generally limited to certain regions or countries. Millennial Media extended their dev platform - mMedia allows developers and advertisers to do hyperlocal targeting on a global scale. 

Privacy – There was a lot of discussion on privacy. Everyone has an opinion but not necessarily a good solution. Everyone wants to be guardian of consumer data but don’t want to be held responsible for breaches. This pretty much means regulators are going to move in and it will be hard to predict the impact.

Retailers in mobile – Some of the retailers seem frozen in Mesozoic era and can’t seem to free themselves of their archaic strategies. They realize something is wrong but can’t bring them to change how they drive commerce. There is still a lot of focus on driving traffic to the stores rather than driving commerce to the stores.

Mobile Health and Wellness – Developed countries are driving mobile wellness and developing countries are driving mobile health.

2012 is going to be another fast-paced roller coaster for the mobile industry. Looking forward to a terrific year ahead.

Your feedback is always welcome.

Chetan Sharma

We will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds, future research reports, and articles. The next US Wireless Data Market update will be released in Mar 2012. The next Global Wireless Data Market update will be issued in Apr 2012.

Disclaimer: Some of the companies mentioned in this paper are our clients.

Mobile Internet 3.0

How Operators Can Become Service Innovators and Drive Profitability

Sponsored by Juniper Networks

Download PDF

The mobile ecosystem is going through significant shifts in consumer behavior, the value-chain alignment, and the strategies required in managing the profitability of the service business. Operators around the world are experiencing tremendous mobile data growth. While the mobile data revenues are increasing, the margins are decreasing for many operators. As the percentage of the smartphones on the network increases, the data business is primarily becoming an access business which is difficult to sustain over the long-haul.

Additionally, it is becoming clear that the long-term value will be in the portfolio of value-added services (VAS). As we slowly migrate into the Mobile Internet 3.0 world where mobile data becomes the primary source of service revenues, operators have a fundamental choice to make – either learn to live with the utility business that pushes the margins downwards by 30-50% or selectively compete and/or collaborate with the OTT (over the top) players where they can offer compelling solutions and packages to their customer base and beyond.

Operators who are fully able to grasp the changes occurring in the ecosystem and are willing to refocus will position themselves for higher profitability in the coming years.

A fundamental rethink of the network and the business models is required. Rather than leaving all the VAS business to others, operators should look at ways to launch new services, to micro-segmented consumer base, to enable APIs and services that the developer ecosystem can build on, and to look at the core network to enable incremental revenue streams.

The pace at which the new services are launched needs to accelerate and the marginal cost of the introduction needs to go down significantly. By architecting the “network as a platform,” operators will have more flexibility in deploying an open and programmable network that not only provides operational efficiencies and insights but also paves the way for new generation of services such as mobile cloud, mobile security, health care, and identity management.

The paper looks at the global trends in mobile data and the need for new approaches to operator services that can help increase the mobile data margins and help operators play a more decisive and enabling role in the mobile ecosystem. The paper provides an operator blueprint for succeeding in the Mobile Internet 3.0 era by discussing the operating principles and the long tail of VAS. Several strategies and application areas are analyzed that can help operators in building a viable VAS strategy and sustainable profit streams.

We will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds, future research reports, and articles. The next US Wireless Data Market update will be released in Mar 2012. The next Global Wireless Data Market update will be issued in Apr 2012.

Disclaimer: Some of the companies mentioned in this paper are our clients.

http://chetansharma.com/ATaleofTwoMobileMarketsChinaIndia.htm

Next weekend, on March 3^rd around noon China Standard Time to be precise, China will sign up its one billionth mobile subscription. India in the meantime, crossed the 900 million subscription mark in Feb. Roughly an year ago, India was adding subscribers at historically record pace of approximately 20 million subscriptions per month (that translates into a new Australian market every month) while China continued at its steady pace of 8-12 million net-adds per month. In Q1 2011, data indicated India might actually edge out China to reach the first billion landmark. Then, the market collapsed due to the intense competition, the pervasive corruption, and the accounting gimmicks.

In 2011, the global GDP growth was 2.7% according to the World Bank. While the OECD countries saw only modest gains (1.7%), China (9.1%) and India (6.5%) accounted for a good percentage of the global growth. Buoyed by the rising disposable income, the middle class in the two biggest countries are spending more than ever before.

All of the top 6 global operators by subscriptions are from China and India. Collectively, they account for 27% of the global mobile subscriptions and 12% of the global service revenues. In 2011, India added 141 million subscriptions while China netted 133 million.

Having worked in both of these markets over the last decade, I have always seen China and India as two of the most dynamic mobile markets in the world. They might seem similar on surface but are quite different underneath. Both represent vast human resources and the biggest middle class with buying power. However, their competitive landscape is vastly different. On our Competitive Index (CI) scale of global markets, they are on the extreme ends of the revenue and subscriber concentration indices. China is one of the least competitive mobile markets and India is by far the most competitive mobile market in the world.

In China, China Mobile monopolizes the market with over 66% of the market. Regulators are trying to boost the other two operators China Unicom and China Telecom but have a lot of work left on their plate. India on the other hand is a hot cauldron of intense competition, too much competition if you ask the operators. There are 5 operators with roughly 100 million or more subscriptions with the Bharti Airtel at number 1 but with less than 20% market share.

China’s mobile journey began in the early nineties with the Ministry of Post and Telecommunications providing the telecom services as China Telecom. In 1994, under pressure, China Unicom was introduced to the market but was largely a failure. Later in 1999, China Telecom was split into three businesses with China Mobile becoming the mobile arm. Recently, when the 3G licenses were granted, market was segmented into its current form with China Mobile still leading the pack by a good distance.

China’s overall growth for the past decade has been pretty steady staying between 8-12 million net-adds per month. Remarkably, the ARPU has stayed fairly consistent at around $10. Data revenue started growing significantly in the last 3-4 years. China Mobile has been the number one operator by the number of subscriptions, the total revenue, and the market cap for many years now (it is more valuable than Google). In data revenues, China Mobile has consistently ranked in the top 5 for the last 5 years.

India started its mobile journey late towards the end of the last decade but after a series of market reforms and introduction of new players like Reliance in early 2000s, market caught fire. The lack of landline infrastructure, the declining $/min costs aided by the burgeoning middle class meant the market was ripe for explosive expansion. In 2005, India was roughly 300 million subscriptions behind China but its per month net-adds has been inching up steadily and by Q2 2007, India caught up with China in net-adds.

While China’s mobile market growth continued at a steady pace, the Indian market leaped into high gear, breaking records month-after-month and came tantalizingly close to China in Q2 2011 with only 55 million separating the two at the time. However, by then, the market retreat had already started. As we outlined in our Competition and Evolution of Mobile Markets research paper last year, the market composition and the intense competitive landscape was unsustainable. The cost to acquire a new subscriber started to become unbearably high. The rapid customer acquisition at any cost started to have a significant impact on operator profitability.

Also, the heavy burden of regulatory levies meant that the regulatory charges are approximately 20-25% in India whereas in China they are negligible. This meant, virtually all the operators started veering towards the dangerous negative margin territory in 2011-12. Additionally, the pervasive corruption reared its ugly head and a number of key players got caught up in the spectrum auction scandal. The bottom line is that the market is going to stay in the state of “mess” for the next few quarters as it tries to clean things up and plan the next phase of growth and momentum. It can take solace from the fact that the open free market and legal framework is still attractive to the mobile ecosystem. The fact that Vodafone won the $2 billion tax case should inspire confidence in the market.

Not surprisingly, the intense competition had a significant toll on the overall ARPU in India. While China’s ARPU stayed constant at $10 for much of the decade and its data % increased to 27% in 2011, India’s ARPU plummeted from $11 in 2005 to $3 in 2011. Players like Reliance boast a subscriber base of 150 million but the ARPU is < $2 leading to a meager 3.7% profit margin. However, many of the Indian operators are a part of the big conglomerates so it is easier to absorb and hide the declining financials. Regulators must realize that the industry can stay healthy only if its players remain financially viable. One has to look at mobile growth holistically. They must abolish outdates policies, rationalize the exorbitant levies, liberalize the market further and outline long-term spectrum policy without delay.

It is fairly easy to be fooled and seduced by the large numbers. However, these markets are not for the faint hearted. After the pleasantries are over, the unsuspecting and the unprepared will get chewed and spat out in no time. The feeble IP regimes make it even more problematic. But, it is 37% of humanity we are talking about. Markets are still attractive but one needs a strategic focus, strong local partners, and iron clad teeth to take a bite of these markets. Even established players can exhibit extreme naiveté in understanding the rules of the game.

Regulators in both markets face key decisions on a number of vectors – 4G spectrum, competition, FDI, IP, broadband plan, and policies on a number of fronts. Both countries have similar long-term goals but are inefficient in terms of regulations and capital allocation (they are not unique in this respect, even more advanced markets like the US have their share of quirks in the regulatory framework) needed for the next phase of market and revenue growth.

India is likely to cross its billionth mark by early 2013. The market will go through significant restructuring and self-correction over the course of next two years. China will look to expand its 3G and 4G markets and bring broadband to the masses. The smartphone and data usage is on the rise laying the foundation for the future transformation.

China has been the bolder of the two. By deft coordination and shrewd strategy, the likes of Huawei and ZTE have shaken its western rivals in their boots while protecting its local turf. India has been content with the services business though it is starting to ramp up its manufacturing and R&D capabilities. Indian operators have had better success at spreading their wings, investing in foreign markets and collaborating with foreign operators. China is somewhat closed but disciplined. India is mostly open but waffling.

In the last ten years, China has become the 2^nd largest economy in the world behind the US while India will edge past Japan to become #3. Given that mobile will have a central role in the ICT evolution of global markets particularly in the developing nations, what happens in the mobile markets of China and India will influence rest of the world. (I just finished up a project for UN in this area, more to come).

So, congratulations to China for the significant milestone and to India for its tremendous growth.

The future of mobile data applications and services in China and India is extremely bright albeit tortuous.

Tighten your seatbelts and enjoy the journey.

Your comments are always welcome.

Thanks

Chetan

MSNBC – Talking LTE along with the CTOs of the top 4 US operators

CNBC – Talked to Jon Fortt about Family Data Plans – They are coming

The Grand Slam of electronic gadgets brought back the faithful to the sin city of Las Vegas to indulge in the future of electronics, gadgets, and consumer behavior. This note summarizes my observations from the CES show.

Pass the baton – CES is turning into a wireless show. With Microsoft no longer leading the keynotes in future editions, my vote will be for Qualcomm’s Paul Jacobs who gave a fun and eloquent keynote himself to occupy the opening keynote next year.

Connected Everything – Our theme for last year’s Mobile Future Forward was “Connected Universe, Unlimited Opportunities.” It was one of the central themes of this year’s CES (and is likely to be for many more years). From health monitors to Sony Vita, from treadmills to autos, connectivity is driving new features, behavior, and hopefully consumer demand.

Gesturize Everything – Touch is for oldies, gesture (wave and voice) is driving the new interactions. If you thought talking to machines was weird, well! get used to it. Starting with TVs, autos, gaming devices, and PCs, gesture based computing is invading the internals of electronic devices everywhere.

Microsoft/Nokia resurgence? – Nokia’s Elop was everywhere to help introduce the windows devices in North America. AT&T could do to Windows devices what Verizon did to Android – give it a boost that is. While the OS is fresh and elegant, the consumer interest has been tepid. Though there are a number of things that could go wrong with pricing, execution, and marketing, at least they have some operator allies in the North American market this time around.

1K is so yesterday, 4K/8K is in – TV manufacturers touted higher resolution 4k/8k displays. Never mind the content in new formats won’t be available for months. However, the displays are getting sharper with exquisite clarity. It is a great time to be a consumer.

Live Mobile TV, No it is not dead yet – I have been a believer in broadcast mobile video. Dyle could succeed where Mediaflo failed; it just needs to get the top tier operators behind the endeavor.

Waterproof is the new black – It seemed like the OEMs have been reading from research that consumers are not aware off. They either expect us to start using the tablets and phones in shower or start colonizing oceans in search of greener pastures. Almost all OEMs had their devices in “hold-your-nose-and-dip-in-water” mode.

Chinese are coming – Pretty soon “Made in China” will also mean conceptualized and designed in China. The Japanese and Korean gizmo manufacturers should be bracing for a tough slug in the months ahead. Chinese brands are starting to make an impact on the show floor, often a precursor to the impression on the global marketplace.

You say MacBook Air Imitators, I say Ultrabooks – Intel and partners were out in full force to demonstrate that sleek designs can go hand-in-hand with windows as well. It is not a substantially new category, will just eat the share from notebooks.

Intel’s entry into smartphones – Will they, won’t they? The question of when will Intel be a player in the mobile space has been out there for a while. Intel’s partnership with Motorola + the OS partnership with Samsung is its attempt to alter the mobile ecosystem. While our Predictions Panel gave man finding water on Mars a higher probability than a new mobile ecosystem emerging, Intel might be one to watch.

3D Printers – Having a birthday party, no problem! Something new and cool, now you can print kids’ toys right from your desk. It will set you back $1300 but you will be the geekiest dad on the block.

Phablets – Getting tired of phones? tablets? How about Phablets with your morning tea sir? Samsung’s Note is trying to convince customers that hybrid is all they need for making phone calls or drawing a portrait for an art gallery. OEMs are launching devices for every inch in the range of 4” to 12” and see what sticks.

Tablet Bloodbath – There were so many tablet launches at CES that it is hard to keep track of them. One thing most of them had in common – no pricing, no launch dates which is generally a precursor to their trip to the graveyard of electronics.

Home Energy Networking – If your home lights are starting to flicker without any sane reason, there is a good chance that someone has gotten a hold of your WiFi router which controls your house’s electric outlets via adaptors that are about to flood the market. Other devices for the home like kitchen tablets etc. have also started pouring in.

AT&T Developer Summit – The mobile developer summit was very well executed, full with announcements (how about free unlimited API access for one year), buzz, and gravitas. Google would have been proud.

The ghost of Apple – As usual, the ghost’s presence was felt at the show (including some execs in human flesh).

Coolest demo – For me it was Samsung’s transparent window. Gives a new meaning to window shopping.

Coolest toy – My vote goes to Parrot’s AR.Drone. Will set you back $300 but will make you the neighborhood ninja. What was missing was a drone that can carry humans so they don’t have to walk 50,000 CES miles in one day.

Coolest booth – Auto industry can teach a thing or two about stacking up the booths. Audi with its blindingly fluorescent lights and futuristic concept cars was quite impressive with Mercedes Benz a close second. LG with its massive 3D TV wall was also quite impressive.

CES Star of the Show – Samsung with its omnipresence dominating virtually every important CE category has to be the most dominating player in the industry. Of course, Apple gives its Korean counterpart run for its money but Samsung made its presence felt with a slew of devices, future vision, and an integrated view of the world.

Your feedback is always welcome.

Thanks

Chetan

We will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds, future research reports, and articles. The next US Wireless Data Market update will be released in Feb 2012. The next Global Wireless Data Market update will be issued in Apr 2012.

Disclaimer: Some of the companies mentioned in this paper are our clients.

2012 Mobile Industry Predictions Survey

http://www.chetansharma.com/MobilePredictions2012.htm

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First things first. From all of us at Chetan Sharma Consulting, we wish you and yours a very happy, healthy, and prosperous 2012. My thanks to all who participated in our 2012 Mobile Predictions Annual Survey. It gives our community an insider’s view of trends.

2011 was a terrific year for the mobile industry. With all its ups and down, consumers embraced devices, applications, services, and technology with more gusto than ever before. In the waning hours of 2011, we crossed the 6 billion subscriptions milestone. While the first billion took 19 years, this last billion only took 15 months.

Smartphones are selling like hot cakes. We estimate that by the end of Q4 2011, over 60% of the devices sold in the US were smartphones and over 30% of the global sales were for the evolved brethren of the primordial featurephones. Sparked by insatiable consumer demand for mobile data, LTE and HSPA+ networks are sprouting all over the planet with US leading the charge for broadband deployment.

Our annual survey is a way for us to engage our community on the trends for the next year. We put some of the pressing questions to our colleagues and industry leaders. We are able to glean some valuable insights from their choices and comments, some tangible shifts, and get a sense of what’s to come. Executives, developers, and insiders (n=150) from leading mobile companies and startups from across the value chain and around the world participated to help see what 2012 might bring to keep us on our toes. What makes this survey unique is that it draws upon the collective wisdom of folks who are at the center of the mobile evolution.

Fifteen names were randomly drawn for the limited edition of the Mobile Future Forward 2011 book. The winners are:

1. Tor Bjorn Minde, Head of Ericsson Labs, Ericsson

2. Sunder Somasundaram, Industry Solutions Practice Director, AT&T

3. C. Enrique Ortiz, Mobile Technologist, About Mobility

4. Russell Buckley, CMO, Eagle Eye

5. Marianne Marck, VP – Engineering, Starbucks

6. John Foster, President, ZED USA

7. Angel Luis Saez, Sr. Director, Orange Spain

8. Dilip Mistry, Senior Director, Microsoft Asia

9. Phyllis Reuther, Advanced Analytics Lab, Sprint

10. Gene Keenan, VP of Mobile, Isobar

11. Elizabeth Day, Director of Finance, Trilogy International

12. Alan Cole, Research Staff Member, IBM T.J. Watson Research Center

13. X J Wang, VP – GM China, Vesta Corp

14. Michelle Lee, Director, SK Telecom

15. Hemant Chandak, Sr. Analyst, Cisco Systems

Thanks again to everyone who contributed. We will be calling on you again next year. It has been a terrific year for us at Chetan Sharma Consulting and we are looking forward to an engaging and productive 2012.

Be well, do good work, and stay in touch.

Thanks and with warm wishes,

Your feedback is always welcome.

Thanks

Chetan Sharma

Now onto the 2012 Mobile Industry Predictions Survey Results.

1. What was most newsworthy in Mobile 2011?

Android had a spectacular rise in 2011 around the globe. Android OEMs collectively shipped the most number of devices and while margins shrank, they were able to put a united front to iOS. 2011 will always be remembered for the passing away of the industry transformer Steve Jobs. His work directly or indirectly touched billions of souls around the planet, many times over – something rarest of human beings are able to achieve in their life time. Regulatory tussles and significant increase in IP disputes also occupied the headlines. Amazon announced its intention for the mobile space with the launch of Kindle Fire.

2. What will be the biggest mobile stories of 2012?

As we look towards 2012, our panel voted for the continued growth of mobile data as the biggest story followed by Amazon’s entry into the mobile space. Some key questions for the year are: Will Microsoft/Nokia devices will make any meaningful progress? Will RIM survive the year? How does Google manage the fragmentation, decline in margins (for the OEMs), and the IP issues? Will any high-profile security and privacy mishaps lead to more regulatory entanglements? Facebook IPO and its mobile ambitions? How do operators manage the data demand? Which M&As will capture industry’s attention? Will Apple continue to dominate on both smartphone and tablet front? What does Apple do with mobile payments? and much more. Clearly, it is going to be a terrific year.

3. Who will be the most open player in the mobile ecosystem in 2012?

File this in the “perception is reality” folder. Despite all the criticism, Google has maintained its strong position as the most open player in the mobile industry.

4. What applications will define 4G?

Still looking for a killer-4G app? Video, cloud computing, and access will continue to drive 4G demand and growth.

5. What will be the breakthrough category in mobile in 2012?

For a second year in a row, the panel voted for mobile payments and mobile commerce as the top two category that will find their voice. Mobile advertising has become mainstream so it lost its ranking in the top 3.

6. What will be the most popular consumer mobile applications in 2012?

Apps preferences vary by regions depending on a whole range of factors. Messaging and Commerce are the top two categories for the developing world while consumers in the developed nations are likely to gravitate towards commerce and location based services.

7. Which will be the most dominant (unit sales) tablet platform in 2 years?

iOS and Android will dominate the tablet landscape for the next 24 months. A late entry by Windows 8 tablets could make a dent but don’t count on it.

8. Who will make the biggest mobile acquisition in 2012?

2011 had its fair share of block-buster acquisitions, some successful while others were not. Our panel expects Microsoft and Google to continue making the biggest acquisitions.

9. How will the "Apps vs. Mobile Web" debate shape up in 2012?

It seems like the pendulum is swinging towards the mobile web though hybrid solutions are likely to stay with us for a long time.

10. Who will define the mobile payment/commerce space?

The financial companies safely locked in the mobile payments space and while the value chain is fairly complicated and definition confusion abounds, the likes of Visa, Operators and Google will continue to drive the payments/commerce space.

11. Which solutions will gain the most traction for managing mobile data broadband consumption?

Managing data growth and margins drives all strategies at mobile operators these days which in turns drives the value chain. 4G, tiered pricing, and mobile offload continue to be the top solutions if one has the spectrum that is.

12. Which category will generate the most mobile data revenue in 2012?

Messaging, access, apps, and advertising are the four broad categories that drive mobile data revenues around the world. The developing markets rely on messaging while the developed markets are increasingly looking to access as their dominant form of revenue generation.

13. What will help mobile cloud computing gain traction in 2012?

Mobile cloud computing will continue to be defined by enterprise, storage, and media needs.

14. Which enterprise segment will mobile impact the most?

Best buy is becoming the next Circuit City. Other retailers will follow unless they can successful reinvent themselves. Health is more regulatory driven so the progress will be slow though it is ripe for a complete overhaul and developing nations are moving much faster in this space.

15. What will be the dominant revenue model for apps in 2012?

In-app revenue model made good strides in 2011 but the combination of the various available revenue models will be the norm for most application developers.

16. What mode of mobile payments will get traction in North America and Western Europe in 2012?

2011 was the year to set the ground work for growth in the mobile payments space. Given the investment and focus, we are likely to see more movement and consumer involvement in 2012 with proximity based solutions and commerce of physical goods on mobile.

17. What will be the most successful non-mobile-phone category in 2012?

Tablets dominate. Period.

18. Which of the following are likely to happen in the near future?

The is a significant shift in computing taking place right in front of our eyes wherein tablets are replacing laptops and even desktops in the enterprise. European operators have been experiencing tough times while some of the Asian operators are flush with cash, they might make their move in 2012 though regulatory hurdles might prove to be an issue. 33% of the nations will have elections in 2012, maybe which will move mobile voting to the forefront in some nations. Our panel thought there is a better chance of humans discovering water on another planet than rise of another significant mobile OS.

19. Which areas will feel the most impact from Regulators in 2012?

Net-neutrality and market competitiveness will keep the regulators busy in 2012.

20. Who was the mobile person of the year?

Clearly, Steve Jobs was an easy choice but who will replace him 2012? Jeff Bezos has an early lead followed by Andy Rubin and Mark Zuckerberg. Angry Birds representing the developer community will be in for another terrific year. Other honorable mentions were Tim Cook, Paul Jacobs, Sanjiv Ahuja, Dan Hesse, and Glenn Lurie.

A lot to look forward to in the New Year. My thanks to all who participated and we hope you found it useful as you embark on your journey for a successful 2012.

We will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds, future research reports, and articles. The next US Wireless Data Market update will be released in Feb 2012. The next Global Wireless Data Market update will be issued in Apr 2012.

Disclaimer: Some of the companies mentioned in this survey are our clients.

2011 has been a fascinating year – with all the mergers, sky rocketing data growth especially in the US market. 2011 will also be remembered for the passing away of Steve Jobs, the man who helped change the global mobile industry over the course of the last four years. Locally, lots happening – Microsoft/Nokia alliance is launching new devices, Amazon has entered the mobile space with both feet, mobile gaming remains hot, and on a broader scale, we are going through the process of mobilification of everything.

Mark Anderson, CEO of Strategic News Service. I have known Mark for over 15 years now as one of the early subscribers to his wonderful newsletter. My good friend and coauthor Joe Herzog introduce me to Mark and since then I have been influenced by his writing. If you follow my blog, the name AORTA or Always On Real Time Access was coined by Mark in the late nineties and he generously allowed me to use it. Mark has also been writing about the carry-along-PC aka tablets for sometime and won the bet with bet with Michael Dell on the growth of this sector. He just finished off his annual predictions for 2012, so we had a lot to talk about.

Laura Marriott is CEO of Neomedia which is doing some pioneering work in the mobile barcode/mobile marketing space. But she is more famous for her work at the Mobile Marketing Association where she helped grow the industry and the association to make it a thriving enterprise.

Satya Mallya is Director at Orange. For those of you don’t know Orange is one of the top European Operators but he is based in the silicon valley working on some cool projects. He has been in the telecom space for almost 20 years working at Bell Labs, Octel and two startups

Brian Fling is CEO of pinchZoom a mobile agency that helps big brands like BBC, Paypal, Delta and others understand mobile design and development. He is passionate about mobile user experience, has spoken and written extensively about the subject.

Jay Emmet is GM OpenMarket, SVP, Amdocs and knows the messaging, commerce space on the back of his hand. Very successful stints at mblox, ATG and others. Knows the operator world really well and has been straddling both the on-deck/off-deck world for a long time.

We touched on a range of subjects from IP to platforms, from privacy/security to mobile commerce and payments, from Microsoft to Amazon .. and so on and so forth. Below is the summary of the discussion:

• While the economy in various regions has been shambles, the tech industry has been largely protected, especially, the mobile industry. We are lucky to be working in space. Amen!
• As far as the mobile platforms are concerned, there are only two that matter – iOS and Android with iOS still having a strong upper hand. Android is plagued with IP issues and OEMs are starting to have second thoughts about the cost and risks of supporting Android in the long-term. All this is of course very fluid and will depend on the outcome of a number of IP cases in courts.
• Microsoft has made some progress with Nokia but as recent shuffling indicates, all is not good and there is going to be considerable work needed in the coming days to get alliance working in sync and work a thriving ecosystem long-term.
• Siri has just changed the game at some many levels. Consumers now expect more from their devices and players are scrambling to deliver.
• This year began with the debate of apps vs. mobile web. Mobile Apps have fundamentally changed the mobile UI and design paradigm. Consumers don’t want to just browse a page on their devices, they want great user experiences all of which can’t be delivered on mobile web. Apps stay quite a bit ahead of the game.
• There is systematic IP theft and cyberattacks going on and western nations and companies are finally waking up to do something substantial. However, it is going to be a long journey to get it right.
• Many small companies have built good, attractive IP portfolios in mobile and given the investment and invention, they should be allowed to maximize the value of their IP.
• Amazon’s entry has changed the game. It has already become the number two in tablets and more to come. It will impact retail, advertising, and many other segments of the consumer economy.
• Over the last 20 years, capacity has been an issue every year but this time around, the capacity constraints are significant. While the services and consumption have gotten much better in orders of magnitude, the prices have largely stayed the same. To build capital-intensive networks, operators will have to find ways to increase data revenues.
• Operator channel is still a viable channel for the developers especially the ones who are looking for broader international reach.
• Mobile Security on smartphones remains a worrying concern and is an opportunity area for entrepreneurs.
• Mobile Privacy is a complicated issue. Many businesses are actually based on exploiting the privacy not protecting it so the business models are at odds with the privacy mantra and regulations. Something has to give. More regulations to come.
• QR codes and NFC will live in harmony for sometime.
• There are currently no clear winners in the mobile payments space. It is likely to stay very fragmented and is likely to become even more so over the coming days before any leaders emerge. Payments remains the most complicated ecosystem with many players involved and success stories will depend on the use-case scenarios.
• Cloud offers a differentiating opportunity for the operators and compete effectively with some of the OTT players.
• Many industry verticals are getting transformed by mobile. Big brands are aggressively pursuing mobile as a key strategic project. Health, Retail – opportunities abound.
• While traditional messaging is getting impacted by IP messaging, the decline is not universal and operators are reacting with new business models and technology initiatives.
• 2012 will be another great year for mobile. Fasten your seat belts.

It was a joy to moderate this terrific panel that kept audience glued to their seats till the very end. Thanks all for coming. We have some terrific events planned for 2012, Stay Tuned.

Until then, Wish you and yours a very happy and stress-free holiday season and enormously successful and prosperous 2012.

And don’t forget to fill out our Annual Mobile Predictions Survey for 2012. There are prizes for 10 lucky winners.

ps. As I mentioned in the opening, WA state dept has a wonderful program to help startup with their travel to Mobile World Congress in Barcelona next year. Details here. Startups should check it out.

Let us know what you think and enter to win the limited edition exclusive Mobile Future Forward Book for 2011.

We will be delighted to hear from you. Here is the link.

The questions are:

1. What was most newsworthy in Mobile 2011?

2. What will be the biggest mobile stories of 2012?

3. Who will be the most open player in the mobile ecosystem in 2012?

4. What applications will define 4G?

5. What will be the breakthrough category in mobile in 2012?

6. What will be the most popular consumer mobile applications in 2012?

7. Which will be the most dominant (unit sales) tablet platform in 2 years?

8. Who will make the biggest mobile acquisition in 2012?

9. How will the "Apps vs. Mobile Web" debate shape up in 2012?

10. Who will define the mobile payment/commerce space?

11. Which solutions will gain the most traction for managing mobile data broadband consumption?

12. Which category will generate the most mobile data revenue in 2012?

13. What will help mobile cloud computing gain traction in 2012?

14. Which enterprise segment will mobile impact the most?

15. What will be the dominant revenue model for apps in 2012?

16. What mode of mobile payments will get traction in North America and Western Europe in 2012?

17. What will be the most successful non-mobile-phone category in 2012?

18. Which of the following are likely to happen in the near future?

19. Which areas will feel the most impact from Regulators in 2012?

20. Who was the mobile person of the year?

Thanks. We will be back with results during the first week of Jan 2012. Until then, best wishes for a great holiday season and a terrific new year.

http://www.chetansharma.com/usmobileupdateQ32011.htm

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Summary

The US mobile market continued its blistering pace of growth and ecosystem restructuring. While China and India lay claim to the fastest growing markets on the planet, the many of the meaningful and impactful trends are originating out of the US market with software at the epicenter of creation, growth, change, evolution, and destruction.

The US wireless data market grew 5% Q/Q and 21% Y/Y to reach $17B in mobile data service revenues in Q3 2011 and is on course to increase Y/Y by 22% to $67B in 2011.

As predicted, Samsung overtook Apple as the leading smartphone OEM. However, Apple will continue to dominate profit share for the foreseeable future.

Smartphones continued to be sold at a brisk pace accounting for 57% of the devices sold in Q3 2011. Operators are averaging 70% of their postpaid sales as smartphones with Android dominating though iPhone leads in mindshare. The featurephone as a device species is on the verge of extinction.

Mobile Ecosystem Complexity

As expected, Amazon entered the mobile tablet space with a killer value proposition - $200 for a tablet, something the market sorely needed. While other OEMs tried to compete with Apple on performance (and have been retreating from the market one by one), Amazon is entering the battle on its own turf – a hardware platform built on Android with a slew of services to underwrite the device discount. Incumbent OEMs just can’t compete with that strategy without a complete rethink of their product strategy. What happens when Amazon’s strategy migrates to handsets? While Kindle Fire is not a serious threat to Apple iPad, and the current version has a lot of deficiencies, Amazon has carved out a nice market for itself that will continue to grow in the coming days. In some sense, with its tight integration of commerce, cloud, and advertising, it has out-maneuvered even Google.

Amazon’s impact will be felt by many others in 2012 as its strategy becomes more apparent. Retailers will be facing the brunt of the wave that Amazon represents i.e. etailers supplanting physical retailers. Don’t be surprised if Amazon purses Apple like stores to showcase its merchandize and puts a dagger at the heart of retail.

Google has done a masterful job of shepherding Android through the turbulent platform waters and make it the dominant mobile platform in terms of shipments.

Microsoft and Nokia finally introduced the Windows devices and it has at least given them a fighting chance in 2012, though a far more competitive offering would be needed to make any significant market share or revenue share inroads. Microsoft’s Xbox/Kinect integration remains its best card for 2012.

In a severe case of corporate schizophrenia, HP first launched webOS devices, then backed away, then thought of re-launching only to give it away to open source. Similarly, RIM faces critical test in 2012 and all its hopes are pinned on the new OS that is expected to come to the market sometime next year.

Mobile is changing the way we spend

It is very clear that mobile will be at the center of the human evolution for years to come. Mobile collapses time and distance and as such impacts every facet of our lives. While we have come to know the mobile phone as a communications device, their role in our daily lives has been expanding. From checking emails, paying for tickets, sending money transfers, taking pictures of your kids, watching soccer World Cup live, checking commodity pricing, to emergency response to mHealth (mobile Health), mobile devices have become an essential tool to help us navigate our day.

Mobile also plays a key role in how we go about the most basic transaction in a given day that keeps the economy humming – spend. We discussed this and more in the paper “How Mobile Will Change The Way We Spend”  that was released last quarter.

What to expect in the coming months?

All this has setup an absolutely fascinating 2012 in the communication/computing industry. Convergence is everywhere and is leading to a fundamental reset of the value chains and ecosystems.

As usual, we will be keeping a very close eye on the micro- and macro-trends and reporting on the market on a regular basis in various private and public settings.

Against this backdrop, the analysis of the Q3 2011 US wireless data market is:

Service Revenues

• The US Wireless data service revenues grew 5% Q/Q and 21% Y/Y to $17B in Q3 2011. The mobile data services revenues for the US market are on track to reach $67B in 2011.
• Verizon and AT&T had a good mobile data quarter accounting for 62% of the increase in data revenues in Q3 2011.
• For the quarter, AT&T and Verizon accounted for 69% of the market data services revenues and 62% of the subscription base.
• Verizon maintained its #1 ranking again just edging past NTT DoCoMo who came in at number two with $5.95B in data revenues for the quarter. AT&T maintained its #3 position with $5.6B in data revenues. Sprint and T-Mobile maintained their #6 and #8 rank in the top 10 mobile data operators list for Q3 2011.

ARPU

• The Overall ARPU increased by $0.31. Average voice ARPU declined by $0.49 while the average data ARPU grew by $0.80 or 4% Q/Q.
• The average industry percentage contribution of data to overall ARPU was 37.6% in Q3 2011 and is likely to exceed 40% by Q1 2012. As expected, Verizon became the first US operator to eclipse the 40% mark with AT&T and Sprint close behind. (for reference, all three major Japanese operators are now above the 50% mark).
• The top three operators were neck-and-neck in data ARPU each recording a 39%+ performance. T-Mobile ended the quarter exceeding the 30% mark for the first time.
• We expect data revenues to exceed voice revenues in the US market in early 2013.

Subscribers

• Helped by the growth in connected devices, the overall net-adds increased by 4.9M with Verizon accounting for almost 50% of the growth.
• For the eight straight quarter, AT&T reported more net-adds from connected devices than postpaid subs. AT&T now accounts for 43% of connected devices in the US (w/ cellular subscription of some sort).
• Overall, AT&T has 43% of the connected device share of the market. The connected device segment growth slowed down to 8% Q/Q and is still up 32% Y/Y.
• Sprint added more than a million subscriptions while T-Mobile added 126k.

Applications and Services

• After unseating Philippines as the king of TXT messaging last quarter, US TXT messaging continues to grow albeit at a slower pace. Philippines is seeing a sharp decline in per user messaging due to IP messaging. Some of the European operators are also experiencing the pain of declining SMS usage. As expected, this transition will continue around the world at different rates. In the US, while the change is underway, we don’t expect any dramatic declines like the Philippines market in the near-term.
• The market is finally starting to see activity in the mobile commerce and payment services as well as in various industry verticals like healthcare, retail, and education.
• Q3 2011 again saw tremendous activity in the mobile commerce and payments space with lot of announcements from the operators, Internet players, and startups as well as the retailers and the ecommerce players. All are vying for a piece of the mobile wallet. Much more to come in the next 12 months.

Handsets

• Smartphones continued to be sold at a brisk pace accounting for 57% of the devices sold in Q3 2011. Operators are averaging 70% of their postpaid sales as smartphones with Android dominating though iPhone leads in revenue and mindshare.
• Nokia’s position in the market improved slightly with the launch of WP7 devices. While it is fairly clear that Windows will acquire the #3 spot behind iOS and Android, the journey to a substantial and competitive market share is still ways off.
• As predicted in the last update, Samsung overtook Apple in smartphone sales and is unlikely to relinquish the title despite a blockbuster iPhone 4S launch in Q4.
• 37% of all smartphones sold globally in Q3 were sold in the US making it the most attractive market for the OEMs.
• Smartphones now account for over 80% revenue of all phones sold in the US.
• In the vertical vs. horizontal platform battle, the ecosystem is shifting towards horizontal domination in the near-term (units sold) while a majority of the profits reside in the vertical column.
• 87% of the tablets use WiFi only (some have inactivated cellular chipset) meaning the operator channel is not a necessary distribution channel. Operators who start to bundle multiple devices by single data plans and data buckets are going to see a better yield in this category. As expected, Verizon announced family data plans for 2012. Other operators will quickly follow or may even preempt Verizon.
• Verizon added another 1.4M LTE subscribers making it the leading LTE operator in the world. AT&T’s LTE plans are gathering steam and Sprint plans to offer LTE in 2012.
• iPhone finally arrived at Sprint. Sales of iPhone 4S have been brisk which is likely to make it the top selling device for the most important quarter of the year.

Mobile Data Growth

• While the spectrum debate rages on, in addition to the network and backhaul upgrades, policy management and data offload have emerged as top two solutions that operators deploying around the world. Signaling management solutions like Diameter routing are also getting good traction. However, a long-term video solution is still elusive. As we have been saying in our Yottabyte series of research papers, a comprehensive solution strategy is needed to effectively manage margins/bit.
• We will have the 3^rd edition of our “Managing Growth and Profits in the Yottabyte Era”research out early next year.

Global Update

• Race to a billion – India’s net-addition rate declined significantly in Q3 2011 while China kept its current pace. We expect that China will be the first country to exceed 1 Billion subscriptions by mid-2012. For India, the event will now occur in 2013.
• For more details, please see our Global Mobile Wireless Market Update released in July 2011.

Mobile Future Forward

Our annual mobile thought-leadership summit - Mobile Future Forward was a grand success. Our thanks to all those who attended as well as to the speakers, sponsors, and well-wishers for making it happen. Planning for 2012 summit are underway and we will keep you posted as plans develop.

More information at http://www.mobilefutureforward.com

Mobile Predictions Survey 2012

As is the tradition, we are running our annual Mobile Predictions Survey for 2012. Will appreciate your input in understanding the trends and news stories that will make 2012 another big year in mobile. Winners of the survey get our fabulous limited edition Mobile Future Forward 2011 book that contains 19 essays from the global leaders in the mobile industry. (Mobile Predictions Survey Results for 2011 here)

Your feedback is always welcome.

Thanks.

Chetan Sharma

We will be keeping a close eye on the trends in the wireless data sector in our blog, twitter feeds, future research reports, and articles. The next US Wireless Data Market update will be released in Feb 2012. The next Global Wireless Data Market update will be issued in Apr 2012.

Disclaimer: Some of the companies mentioned in this paper are our clients.